Office Special Servicing Jumps Again

Overall, CMBS special servicing rates have been on an upward trend, according to a new Trepp report for September 2023. The overall rate last month of 6.87% for all property types and both CMBS 1 and 2 was up 20 basis points from August. Looking back three months and the jump was 45 basis points, 132 points up from six months back, and 193 basis points from a year ago.

Looking at the difference between CMBS 1.0 and then CMBS 2.0, with its generally assumed more conservative structures, was notable. The former has seen somewhat falling special servicing rates over the last year, but still in September was 32.72%. CMBS 2 went the opposite direction, rising 201 basis points from 4.66% a year ago to 6.67% in September. The reason the overall rate in September was only 6.87% then is because the CMBS 1 component had to be much smaller.

Back to the overall numbers, the highest special servicing rate was 10.14% for retail, a high number but one that has come down over the last year from 10.97%. What Trepp pointed to as the was office sector. Overall, it jumped 62 basis points from 7.72% to 8.34%. “This is now the first time that the office special servicing rate has surpassed the 8.00% mark since May 2017,” they wrote. “Additionally, the mixed-use rate rose by 26 basis points, and the multifamily rate dropped by 44 basis points. Industrial went from 0.33% to 0.32%, showing that the category seems sound and in demand.

In September, the largest loan to transfer was the $415 million Courtyard by Marriott Portfolio loan, worth 17% of the new transfer balance last month.”

Driving up the amount of special servicing was $2.41 billion in loans transferred last month. Office properties were 54% of the loans, with lodging providing 19.2%, and retail for 12.9%. “The top two loans to enter special servicing this month were the Courtyard by Marriott Portfolio and 1407 Broadway, due to maturity default and payment default, respectively,” Trepp wrote. “The largest loan, the Courtyard by Marriott Portfolio, is backed by over thirty Courtyard by Marriott hotels across various states, which were all built between 1984 and 1987, and renovated between 2011 and 2014. The Single-Asset-Single-Borrower deal, BBCMS 2018-CBM accounts for the entirety of the $415 million balance.”

The second largest loan was $350 million for 1407 Broadway, a 1.1 million square foot office near Times Square, transferred for payment default.