The Top Triggers That Will Land Your Property on a Watch List

What type of property data can cause a building to be added to a watchlist? CRED iQ, which has put 12,000 loans on the year-to-date servicer watchlist in 2023, with 4,600 added this past July, has analyzed this question and come up with some data points. 

DSCR. 36.5% of all the loans were attributable to debt service coverage ratio triggers, both fixed and floating rates; 

ARD. Pending maturity or anticipated repayment date represented 13.5% of names on the list, which was an increase of 4.5 versus all Watchlist accounts in the CRE database; 

Vacancies. Occupancy decrease accounted for 9.5%, a slight decrease against the overall Watchlist factor of 11.7%; 

Departing tenants. Major  tenant expirations accounted for 2.3% of Watchlist loans, a fractional increase of .3% against all Watchlist filings.

One recent example is 1166 Avenue of the Americas, a 195,375-square foot Manhattan office tower that has $130 million in debt. The loan was recently added to the watchlist, according to CRED iQ data, due to its largest tenants vacating. Those tenants include D.E. Shaw, which had 44% of the gross leasable area, and Arcesium, which had 20% of GLA. The loss of those tenants may reduce the building’s revenue by $8 million to $8 million and impact its debt service coverage ratio.

Why is a commercial real estate watchlist so important? They are particularly useful for lenders, investors and real estate professionals who want to keep an eye on how their commercial real estate loans perform. Here are some other reasons, according to CRED IQ:

They serve as early warning signs of financial distress.

They monitor delinquencies which help assess overall risk exposure of a commercial real estate portfolio and permit timely risk mitigation steps.

They enable lenders to make informed decisions about asset management, loan restructuring and potential loan sales based on delinquency trends.

They give investors information to make informed decisions about diversifying their portfolios by analyzing delinquencies according to property types, geographic locations and asset classes.

They offer insights into market trends and economic conditions since high delinquency rates may signal bigger economic challenges.

They identify delinquencies that help lenders and investors to take steps to mitigate possible losses such as foreclosure or loan workouts.

They help manage collections and guide borrowers regarding compliance for loan servicing.

They assist financial institutions to follow regulatory requirements and report delinquency rates properly.

They help track delinquencies so real estate professionals gain insight into emerging market trends and possible investment opportunities.

They help value assets such as commercial mortgage-backed securities and other types of investment products.