(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 rose 39 basis points month over month to 3.2% in May.
- Seriously delinquent (60-plus-days) and 120-plus-days delinquent loans represented 89.7% and 18.7% of delinquent loans, respectively.
- Special servicing rates increased for office (97 bps; the largest month-over-month increase since we began collecting data in July 2020) and retail (12 bps) loans; decreased for multifamily (16 bps) and lodging (12 bps) loans; and remained unchanged for industrial loans.
- By balance, delinquency rates increased for office (120 bps; the fifth consecutive month of increases), retail (57 bps), and lodging (21) loans; and decreased for multifamily (31 bps) and industrial (1 bp) loans.
The Overall Delinquency Rate Increased 39 Basis Points
The overall U.S. CMBS delinquency rate (DQ rate) increased 39 basis points (bps) month over month to 3.2% in May 2023--the largest increase since June 2020. The rate increased 59 bps from a year earlier (see chart 1). By dollar amount, total delinquencies rose to $22.9 billion, a net increase of $2.8 billion month over month and $3.9 billion year over year (see chart 2).
Chart 1
Chart 2
Several Large Loans Moved Into Delinquency
The overall DQ rate increased in May as an additional 104 loans (totaling $3.6 billion) became delinquent. Table 1 shows the top five of these loans by balance.
The largest delinquent loan was 375 Park Avenue, which is secured by a 38-story, 830,928 sq.-ft. class A office building located between East 52nd and East 53rd Streets in Manhattan. Tenants at the property include Blue Owl Capital Holding (11.9% of net rentable area [NRA]; December 2038 lease expiration), Angeles Wealth Management (9.5% of NRA; January 2027 expiration), and Teacher Insurance Annuity (6.3% of NRA; October 2033 expiration).
The loan first appeared on the servicer's watchlist in June 2021 because the debt service coverage ratio (DSCR) fell to 1.63x as of March 31, 2021, from 2.17x as of year-end 2020. The property's effective gross income declined after the Wells Fargo (28.6% of NRA) lease expired in February 2021. However, in 2022, the borrower was able to lease up 350,000 sq. ft. (42.1%) of NRA, bringing the property's total occupancy to 90.2% as of year-end 2022.
The loan was transferred to the special servicer in May 2023 due to its upcoming maturity date (initially May 6, 2023), and it was later modified and extended to May 6, 2024, with an option to extend to May 6, 2025. According to the modification agreement, the borrower paid $15.0 million upfront and is required to make $40 million in additional principal payments over the next 24 months. The property's DSCR was 0.91x and occupancy was 90.2% as of year-end 2022, according to the servicer. Given the recent modification, we believe the loan will move out of delinquency in June.
Table 1
| Top five newly delinquent loans in May 2023 | ||||
|---|---|---|---|---|
| Property | City | State | Property type | Delinquency balance ($) |
| 375 Park Avenue | New York | N.Y. | Office | 782,750,000 |
| ADV Portfolio | Various | Various | Office | 350,000,000 |
| EY Plaza | Los Angeles | Calif. | Office | 275,000,000 |
| PFHP Portfolio | Various | Various | Lodging | 204,000,000 |
| The Decoration & Design Building | New York | N.Y. | Office | 96,590,431 |
Seriously Delinquent Loan Levels Remain High
Loans that are 60-plus-days delinquent (i.e., seriously delinquent loans) represented 89.7% ($20.6 billion) of the delinquent loans in May (see chart 3). Meanwhile, 120-plus-days delinquent loans (those reported in the CRE Finance Council investor reporting package with a loan code status of "6") represented 18.7% ($4.3 billion) of the delinquent loans (see chart 4).
Chart 3
Chart 4
The Special Servicing Rate Rose 37 Bps
The overall special servicing rate increased 37 bps month over month to 5.3% in May (see chart 5). By sector, the special servicing rate rose for both office (97 bps to 6.1%; the largest month-over-month increase since we began collecting data in July 2020) and retail (12 bps to 10.7%) loans; decreased for multifamily (6 bps to 1.7%) and lodging (12 bps to 5.9%) loans; and remained unchanged (at 0.4%) for industrial loans. Despite increasing, the overall special servicing rate remains well below the 9.5% peak reached in September 2020.
The largest loan to move into special servicing in May was Workspace Property Trust Portfolio. The loan is secured by 86 suburban office properties, 59 flex properties, and one retail property totaling 9.9 million sq. ft. The properties are located in six cities across four states: Arizona (Phoenix), Florida (Tampa, Fort Lauderdale, and West Palm Beach), Minnesota (Minneapolis), and Pennsylvania (Philadelphia). The loan, which matures on July 5, 2023, was transferred to the special servicer on April 25, 2023, due to its upcoming maturity. The special servicer is currently in communication with the borrower and is evaluating potential resolution strategies. According to the servicer, the portfolio's DSCR was 1.61x and occupancy was 80.0% as of year-end 2022. The loan is current as of May.
Chart 5
DQ Rates Increased For All Property Types Except Multifamily And Industrial
Chart 6 shows the historical DQ rate trend by property type. In May, the overall DQ rate increased for office (120 bps to 4.0%; 179 loans; $7.2 billion; the fifth consecutive month of increases), retail (57 bps to 6.5%; 276 loans; $8.0 billion), and lodging (21 bps to 4.0%; 146 loans; $4.1 billion); and it decreased for multifamily (31 bps to 1.0%; 67 loans; $1.3 billion) and industrial (1 bp to 0.4%; 11 loans; $174.2 million).
There were 104 newly delinquent loans totaling $3.6 billion in May. These included 31 office loans ($2.2 billion), 31 retail loans ($730.1 million), 14 multifamily loans ($125.6 million), 10 lodging loans ($384.8 million), and one industrial loan ($8.6 million).
Charts 7 and 8 show the year-over-year change in the property type composition for delinquent loans. DQ composition rates by property type increased year over year for office (to 31.5% from 14.9%) and multifamily (to 5.7% from 3.8%); decreased for retail (to 34.9% from 41.6%) and lodging (to 17.8% from 29.2%; and remained unchanged (at 0.8%) for industrial loans.
Chart 6
Chart 7
Chart 8
Several Large Loans Moved Out Of Delinquency
Although the overall DQ rate increased in May, 51 loans totaling $1.5 billion moved out of delinquency. Table 2 shows the top five of these loans by balance.
Table 2
| Top five loans that moved out of delinquency in May 2023 | ||||
|---|---|---|---|---|
| City | State | Property type | Outstanding balance ($) | |
| Parkhill City | Jamaica | N.Y. | Multifamily | 225,000,000 |
| Federal Center Plaza | Washington | D.C. | Office | 130,000,000 |
| West County Center | Des Peres | Miss. | Retail | 106,062,102 |
| Solano Mall | Fairfield | Calif. | Retail | 105,000,000 |
| 515 Madison Avenue | New York | N.Y. | Office | 97,010,298 |
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 + 1 (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.