Office Sector Leads as $2.1 Billion in CMBS Loans Add to Distress Rate

Office Real Estate Dominates New CMBS Distress at 75%

In November, the distress rate in the Commercial Mortgage-Backed Securities (CMBS) market saw an addition of $2.1 billion in loans. Interestingly, office real estate accounted for nearly three-quarters (74.6%, $1.6 billion) of these newly distressed loans, as reported by the Kroll Bond Rating Agency (KBRA). This surge in office CMBS distress, which rose by 116 basis points to 8.84%, counterbalanced the ongoing improvements in the retail and lodging sectors.

Shift in Office Special Servicing Transfers

Unlike previous months, the majority of office special servicing transfers in November were not triggered by imminent or actual maturity default. Instead, term defaults were the primary driver, particularly those where borrowers sought relief well ahead of maturity. Out of the 26 newly distressed office loans this month, 15 (57.7% by count) have maturity dates that extend beyond a year, as per KBRA's report.

Notable Office Transfers

This month's office transfers included significant properties such as 230 Park Ave. ($670 million in MSC 2021-230P) and 40 Wall St. ($122.6 million across three conduits). Mixed-use properties like 750 Lexington Ave. ($123.6 million across two conduits), which have a substantial office component as part of the collateral, were also part of the transfers. All these properties are located in Manhattan.

Overall Delinquency Rate

The overall delinquency rate for KBRA-rated U.S. CMBS increased by 19 basis points in November to 4.4%, up from October’s 4.21% rate. The total delinquent and specially serviced loan rate, also known as the distress rate, experienced a larger increase of 35 basis points to 6.88% from October’s 6.53%, according to KBRA.

These recent developments in the CMBS market underline the importance of staying informed and prepared, whether you're a prospective homeowner, a real estate investor, or an industry professional. As the real estate landscape continues to evolve, understanding these trends can help you make informed decisions and navigate the market more effectively.