Office Leads Higher CMBS Special Servicing

The CMBS special servicing rate is continuing to creep higher. In July, it was up month-over-month, by seven basis points to reach 8.30%, according to Trepp.

This year, special servicing started at 6.95% and has grown every month, meaning an additional 135 basis points since January 1, 2024, and 168 year-over-year. The rate is at a three-year high and is currently 350 basis points above the July 2022 level. The seven-basis movement is small – but the cumulative shift is significant.

Special servicing rates vary by property type. Currently, office is at the top with the July 2024 special servicing rate of 11.25%, up from 7.33% a year ago. The next highest was retail at 10.89%, only two basis points above the 10.87% rate the prior year. Then mixed-use went from 6.89% in July 2023 to 8.93% in July 2024. Lodging was 7.06% in 2023 and 7.33% in 2024. Multifamily saw a more appreciable absolute gain to 5.11% from 3.26%. The smallest level of special servicing was industrial’s increase from 0.31% to 0.40%. The change between June and July 2024 was industrial (-3 basis points); lodging (+5 basis points); multifamily (-6 basis points); office (+46 basis points); mixed-use (-41 basis points); and retail (+7 basis points).

As usual, type 2 CMBS loans were in much better shape than type 1. The distribution of the former, from July 2023 to July 2024, was industrial (0.20% to 0.30%); lodging (6.95% to 7.27%); multifamily (3.26% to 5.11%); office (7.06% to 11.21%); mixed-use (6.99% to 9.12%); and retail (10.26% to 10.35%). For the June to July move, the amounts were industrial (-3 basis points); lodging (+5 basis points); multifamily (-6 basis points); office (+47 basis points); mixed-use (-41 basis points); and retail (+12 basis points).

For type 1, the year-over-year changes were industrial (69.35% to 84.11%); lodging (35.13% to 24.94%); multifamily (0.00% to 11.76%); office (41.07% to 17.91%); and retail (66.22% to 93.68%). Month-over-month changes were industrial (+99 basis points); lodging (+16 basis points); multifamily (-7 basis points); office (-25 basis points); and retail (-40 basis points).

The rates could have been worse. According to Trepp, new transfers joining special servicing were on the “lighter side,” just under $1.9 billion. The two largest loans entering special servicing were the $400 million Bank of America Plaza loan because of imminent maturity default and the $233 million Aspiria Office Campus loan because of an imminent balloon payment default before an August maturity date.