(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 increased by 21 basis points month over month to 4.3% in January.
- Seriously (60-plus-days) and 120-plus-days delinquent loans represented 86.9% and 16.3% of all delinquent loans, respectively.
- Special servicing rates increased for retail, office, and industrial loans, and decreased for lodging and multifamily loans.
- By balance, delinquency rates increased for office, multifamily, retail, and lodging loans, and decreased for industrial loan.
The Overall Delinquency Rate Increased By 21 Basis Points
In this report, S&P Global Ratings provides its observations and analyses of the U.S. private-label CMBS universe, which totaled $713.0 billion as of January 2024. The overall U.S. CMBS delinquency (DQ) rate increased by 21 basis points (bps) month over month to 4.3% in January 2024. The rate increased 173 bps from a year earlier, representing a 62.2% year-over-year increase by DQ balance (see chart 1). By dollar amount, total delinquencies increased to $31.0 billion, representing a net month-over-month increase of $1.18 billion and a net year-over-year increase of $11.9 billion (see chart 2).
Chart 1
Chart 2
Several Large Loans Moved Into Delinquency
The overall DQ rate increased in January with an additional 123 loans ($3.5 billion) becoming delinquent. Table 1 shows the top five of these loans by balance. The top five newly delinquent loans all have an office component at the underlying properties.
The largest delinquent loan was Herald Center, which is secured by a 249,063 sq. ft. office property in New York, NY. The property is occupied by H&M Hennes & Mauritz L.P. (62,800 sq. ft.; 25.21% of net rentable area [NRA]), a clothing and home goods company; The Joint Industry Board Of the Electrical Industry (57,279 sq. ft.; 23% of NRA), a joint management cooperative organization of employees and employers; and New York SMSA ITD (6,500 sq. ft.; 2.61% of NRA), a telecommunications firm. The loan's DSCR was 1.94x and occupancy was 53% as of the trailing-nine-month period ended September 2023.
The loan, which matured on March 9, 2023, was transferred to special servicing due to imminent monetary default. In addition, the borrower failed to make its September 2023 debt service payment. The special servicer and the borrower have executed a pre-negotiation letter, and counsel has been engaged. The settlement discussions with the borrower remain ongoing. The loan has a nonperforming balloon status as of December 2023.
Table 1
| Top five newly delinquent loans in January 2024 | ||||
|---|---|---|---|---|
| Property | City | State | Property type | Delinquency balance ($) |
| Herald Center | New York | New York | Multiple | 255,000,000 |
| 1818 Market Street | Philadelphia | Philadelphia | Office | 222,900,000 |
| 681 Fifth Avenue | New York | New York | Multiple | 215,000,000 |
| 375 Park Avenue | New York | New York | Office | 200,250,000 |
| Jordan Creek Town Center | West Des Moines | Iowa | Retail | 177,017,765 |
Seriously Delinquent Loan Levels Remain High
Loans that are 60-plus-days delinquent represented 86.9% ($26.9 billion) of the delinquent loans in January (see chart 3). Meanwhile, 120-plus-days delinquent loans (i.e., those reported in the CRE Finance Council investor reporting package with a loan code status of "6") represented 16.3% ($5.1 billion) of the delinquent loans (see chart 4). The 120-plus-days delinquent loans have been on an overall downward trend since peaking at 44.6% ($14.9 billion) of delinquent loans in May 2021.
Chart 3
Chart 4
The Special Servicing Rate Increased By 22 Bps
The overall special servicing rate increased by 22 bps month over month to 6.3% in January (see chart 5). By sector, the special servicing rate rose for office (128 bps to 9.6%), retail (10 bps to 8.8%), and industrial (4 bps to 0.4%), and decreased for multifamily (43 bps to 2.5%) and lodging (14.8 bps to 6.4%). For the office sector, the special servicing rate increase was primarily driven by the transfer of 20 loans to the special servicer (with the two largest properties being 280 Park Avenue and One Market Plaza). However, the overall special servicing rate still remains well below the 9.5% peak reached in September 2020, despite increasing in recent months.
The largest loan to move out of special servicing as of January was 20 Times Square. The loan is secured by a rectangular-shaped parcel of land totaling 16,066 square feet situated along the northeasterly corner of Seventh Avenue and West 47th Street in Times Square, New York. The collateral does not include the Improvements constructed on the parcel of land. The property is occupied by The Hershey Co. (8,440 sq. ft.), a confectionery company. The loan's debt service coverage ratio (DSCR) was 1.29x and occupancy was 11% as of the trailing-nine-month period ended in September 2022.
The loan, which originally matured on May 5, 2023, was returned from the special servicer, Wells Fargo, as a corrected mortgage on Dec. 19, 2023, due to $26.8 million of mechanics liens that were filed against the property, relating to the construction of the Marriott-branded Edition hotel on the property. The liens are a breach under the ground lease and the loan agreement. The loan was delinquent for five months (May through September 2023). However, the special servicer approved a two-year modified extension to May 5, 2025, because the borrower did not repay the debt on the original maturity. The modified terms include that the borrower will fund a guaranteed obligations reserve totaling $69.2 million, the borrower will have nine months to clear the mechanics liens, and cash management will continue with a sweep of excess cash flow to the principal amount until the liens are resolved. The loan was returned to the master servicer, Wells Fargo, as a corrected mortgage loan on Dec. 19, 2023. The loan has a current status as of November 2023.
Chart 5
DQ Rates Increased For All Property Types Except Industrial And Lodging
In January, office loans had the highest DQ rate by property type. The overall DQ rate increased by balance for office (37 bps to 6.2%; 244 loans; $11.1 billion), multifamily (29 bps to 2.8%; 133 loans; $3.5 billion), retail (4 bps to 5.6%; 241 loans; $6.8 billion), and decreased for industrial (10 bps to 0.4%; 12 loans; $0.2 billion) and lodging (9 bps to 5.1%; 125 loans; $5.1 billion). Chart 6 shows the historical DQ rate trend by property type.
There were 123 newly delinquent loans totaling $3.5 billion in January. The sector leads were office (35 loans; $1.21 billion), multifamily (32 loans; $853.4 million), retail (22 loans; $507.5 million), lodging (eight loans; $178.0 million), and industrial (one loans; $21.7 million).
By property type, DQ composition rates increased year over year for office (to 35.7% from 17.2%) and multifamily (to 11.3% from 7.8%) loans, and decreased for retail (to 21.9% from 42.1%), lodging (to 16.5% from 22.9%), and industrial (to 0.7% from 1.0%) loans. Charts 7 and 8 show the year-over-year change in the property type composition for delinquent loans.
Chart 6
Chart 7
Chart 8
Several Large Loans Moved Out Of Delinquency
Despite the overall DQ rate increasing in January, 73 loans totaling $2.5 billion moved out of delinquency. Table 2 shows the top five of these loans by balance.
The largest loan to move out of delinquency was Prime Storage Fund II. The loan is secured by 23 mixed-use properties totaling approximately 2.8 million sq. ft. located in 12 states. The loan's DSCR was 2.46x and occupancy was 87.6% as of the trailing-six-month period ended June 2023.
The loan matured on Oct. 9, 2023. The borrower has requested a maturity extension that is currently under review with the servicer as of Nov. 11, 2023. In addition, the servicer has sent the notice of default to the borrower due to not receiving a rate cap for the new SOFR conversion, which, if not resolved, will result in the outstanding principal balance of the loan accruing at the default rate. The loan has a performing balloon status as of December 2023.
Table 2
| Top five loans that moved out of delinquency in January 2024 | ||||
|---|---|---|---|---|
| Property | City | State | Property type | Outstanding balance ($) |
| Prime Storage Fund II | Various | Various | Multiple | 340,000,000 |
| 24-02 49th Avenue | Long Island City | New York | Office | 217,793,138 |
| Carolina Place | Pineville | North Carolina | Retail | 148,447,618 |
| 805 Third Avenue | New York | New York | Office | 100,000,000 |
| Coastland Center | Naples | Florida | Retail | 98,383,849 |
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: | Amanda Blatz, New York; amanda.blatz@spglobal.com |
| Tamara A Hoffman, New York + 1 (212) 438 3365; tamara.hoffman@spglobal.com | |
| Research Contact: | James M Manzi, CFA, Washington D.C. + 1 (202) 383 2028; james.manzi@spglobal.com |
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