(Editor's Note: This report is S&P Global Ratings' monthly summary update of U.S. CMBS delinquency trends. )
Key Takeaways
- The U.S. CMBS overall delinquency rate decreased slightly by 2 bps month-over-month but remained steady at 2.6% (rounded) in January.
- Seriously delinquent loans (60-plus-days delinquent) represented 88.6% of delinquent loans in January, with 120-plus-days delinquent loans still accounting for the largest portion at 25.2%.
- Special servicing rates decreased for lodging (22 bps); and increased for office (19 bps), retail (6 bps), and multifamily (1 bp); industrial was unchanged.
- By balance, delinquency rates decreased for retail (30 bps), multifamily (9 bps), and industrial (2 bps); and increased for office (19 bps) and lodging (17 bps).
The Overall Delinquency Rate Decreased 2 Bps
The overall U.S. commercial mortgage-backed securities (CMBS) delinquency rate (DQ rate) decreased 2 basis points (bps) month-over-month in January 2023, though it remained steady at 2.6% (rounded). However, it fell 68 bps from 3.3% a year earlier (see chart 1). By dollar amount, total delinquencies fell to $19.1 billion, representing a net decrease of $273.0 million month-over-month and a decline of $4.8 billion year-over-year (see chart 2).
Chart 1
Chart 2
Several Large Loans Moved Into Delinquency
Although the overall DQ rate decreased slightly, 55 loans totaling $1.9 billion became delinquent in January. Table 1 shows the top five of these loans by balance.
The largest delinquent loan in January 2023 was 1500 Market Street, which is secured by a 1.8 million sq. ft. mixed-use property built in 1974 and located in Philadelphia, Pa. The loan first appeared on the servicer's watchlist in June 2020 due to the borrower requesting COVID-19-related relief. An active cash trap was triggered on Aug. 30, 2020, because the reported debt yield of 5.6% was below the debt yield trigger of 6.0%. However, the COVID-19-relief request was subsequently cancelled in October 2020.
The property has shown declining performance since 2020, mainly due to decreasing occupancy. The property's occupancy was 69.4% as of Dec. 31, 2021, the last reported occupancy date, which is down from 92.0% at issuance. Several large tenants have vacated the property, including Towers Watson (244,000 sq. ft.; May 2020 expiration), Comcast (90,000 sq. ft.; August 2021 expiration), and Berwind (48,000 sq. ft.; November 2020 expiration), which has led to the decrease in occupancy.
The loan, which was initially scheduled to mature on Dec. 9, 2021, again appeared on the servicer's watchlist in September 2021 due to the loan's upcoming maturity date, which was extended to Jan. 9, 2022, and then extended again to Feb. 15, 2023.
The loan was transferred to special servicing on Aug. 22, 2022, due to imminent maturity default. The borrower requested a maturity extension due to the inability to refinance and payoff the loan at maturity, and the special servicer is currently evaluating the borrower's request. The loan is now in default and was reported as a nonperforming balloon loan in January.
Table 1
| Top Five Newly Delinquent Loans In January 2023 | ||||
|---|---|---|---|---|
| Property | City | State | Property type | Delinquency balance ($) |
| 1500 Market Street | Philadelphia | Pa. | Office | 368,000,000 |
| LA Lofts Portfolio | Los Angeles | Calif. | Multifamily | 225,000,000 |
| Valencia Town Center | Valencia | Calif. | Retail | 195,000,000 |
| 597 Fifth Avenue | New York | N.Y. | Multiple | 105,000,000 |
| Central Park of Lisle | Lisle | Ill. | Office | 79,500,000 |
Seriously Delinquent Loan Levels Are Still High
Loans that are 60-plus-days delinquent (i.e., seriously delinquent loans) represented 88.6% of the delinquent loans in January (see chart 3). Further, loans that are 120-plus-days delinquent (those reported in the CRE Finance Council investor reporting package with a loan code status of "6") continued to represent the largest portion of delinquent loans, at 25.2% (totaling $4.8 billion) (see chart 4).
Chart 3
Chart 4
The Special Servicing Rate Rose 1 Bp
The overall special servicing rate increased 1 bp month-over-month in January 2023, though it remained steady at 4.4% (see chart 5). The special servicing rate decreased for lodging (22 bps to 5.9%); and increased for office (19 bps to 3.8%), retail (6 bps to 10.7%), and multifamily (1 bp to 1.3%); industrial was unchanged (0.4%). The overall special servicing rate remains well-below the 9.5% peak in September 2020.
The largest loan to move into special servicing as of January was Wells Fargo Center. The loan is secured by a 1.2 million sq. ft., 52-story office building located between Lincoln Street and Sherman Street in downtown Denver, Colo. The loan, which matured on Dec. 9, 2022, was transferred to the special servicer on Dec. 21, 2022, due to maturity default after the borrower elected to not make a second maturity extension. The special servicer has established contact with the borrower and executed a pre-negotiation agreement. According to the servicer, the property's debt service coverage ratio and occupancy were 1.71x and 83.0%, respectively, as of second-quarter 2022, the last reported date, compared with 2.99x and 87.0% at issuance. The loan is current and was reported as a performing balloon loan in January 2023.
Chart 5
DQ Rates Decreased For All Property Types Except Lodging And Office
Chart 6 shows the historical DQ rate trend by property type. By balance, DQ rates decreased for retail (30 bps; 256 loans; totaling $8.0 billion), multifamily (9 bps; 63 loans; $1.5 billion), and industrial (2 bps; 12 loans; $182.2 million); and increased for office (19 bps; 125 loans; $3.3 billion) and lodging (17 bps; 179 loans; $4.4 billion).
There were 55 newly delinquent loans totaling $2.0 billion in January. These included 16 office loans ($810.6 million), 15 retail loans ($532.3 million), seven multifamily loans ($344.3 million), five lodging loans ($96.1 million), and no industrial loans.
Charts 7 and 8 show the year-over-year change in the property type composition for delinquent loans. DQ rates increased year-over-year for retail (42.1% from 40.1%), office (17.2% from 14.3%), multifamily (7.8% from 4.4%), and industrial (1.0% from 0.5%); but decreased for lodging (22.9% from 31.7%).
Chart 6
Chart 7
Chart 8
Several Large Loans Moved Out Of Delinquency
The overall DQ rate decreased slightly in January, with 60 loans totaling $2.5 billion moving out of delinquency. Table 2 shows the top five of these loans by balance.
Table 2
| Top Five Loans That Moved Out Of Delinquency In January 2023 | ||||
|---|---|---|---|---|
| Property name | City | State | Property type | Outstanding balance ($) |
| MFP Portfolio | Various | Various | Multifamily | 382,467,839 |
| Palisades Center Mall | West Nyack | N.Y. | Retail | 151,370,000 |
| Westfield MainPlace | Santa Ana | Calif. | Retail | 140,000,000 |
| The Prince Building | New York | N.Y. | Multiple | 125,000,000 |
| Republic Plaza | Denver | Colo. | Office | 108,542,332 |
This report does not constitute a rating action.
| Primary Credit Analyst: | Senay Dawit, New York + 1 (212) 438 0132; senay.dawit@spglobal.com |
| Secondary Contacts: | Benjamin Ach, New York 212 438 1986; benjamin.ach@spglobal.com |
| Tamara A Hoffman, New York + 1 (212) 438 3365; tamara.hoffman@spglobal.com | |
| Ambika Garg, Chicago + 1 (312) 233 7034; ambika.garg@spglobal.com | |
| Deegant R Pandya, New York + 1 (212) 438 1289; deegant.pandya@spglobal.com | |
| Research Contact: | James M Manzi, CFA, Washington D.C. + 1 (202) 383 2028; james.manzi@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.