(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 22 bps month over month to 4.8% in June.
- By balance, delinquency rates increased for multifamily, lodging, industrial, office, and retail loans.
- Special servicing rates rose for multifamily and office loans, and fell for lodging, retail, and industrial loans.
- The share of loans either modified or extended declined 23 bps month over month to 10.0% in June.
The Overall Delinquency Rate Increased By 22 Basis Points
In this report, S&P Global Ratings provides its observations and analyses of the U.S. private-label CMBS universe, which totaled $719.2 billion as of June 2024 (a net increase of $4.7 billion month over month). The overall U.S. CMBS delinquency (DQ) rate rose 22 basis points (bps) month over month to 4.8% in June 2024. The rate soared 142 bps from a year earlier, representing a 41.2% year-over-year increase by DQ balance (see chart 1). By dollar amount, total delinquencies grew to $34.7 billion, representing net month-over-month and year-over-year increases of $1.8 billion and $10.1 billion, respectively (see chart 2).
Chart 1
Chart 2
Several Large Loans Moved Into Delinquency
The overall DQ rate increased in June with an additional 163 loans ($4.6 billion) becoming delinquent. Table 1 shows the top five of these loans by balance. The top five newly delinquent loans are all secured by retail, office, lodging, and multifamily asset types.
The largest delinquent loan was State Farm Portfolio, spread across four conduits: MSBAM 2014-C16, COMM 2014-UBS3, COMM 2014-UBS4, and COMM 2014-UBS5. The loan is secured by a portfolio of 14 office properties across 11 states. As of year-end 2023, the loan's debt service coverage ratio (DSCR) was 2.06x, and occupancy was 94.0%.
The loan was transferred to the special servicer on Sept. 1, 2023, due to non-monetary default. The loan's scheduled maturity is July 15, 2024. The loan is currently 30 days' delinquent on the loan payments, which were current through May 2024, and the lender is evaluating the request for partial release.
Table 1
| Top five newly delinquent loans in June 2024 | ||||
|---|---|---|---|---|
| Property | City | State | Property type | Delinquency balance ($) |
| State Farm Portfolio | Various | Various | Office | 383,209,245 |
| Destiny USA Phase I | Syracuse | New York | Retail | 300,000,000 |
| Parkmerced | San Francisco | California | Multifamily | 245,000,000 |
| PFHP Portfolio | Various | Various | Lodging | 204,000,000 |
| Tucson Mall | Tucson | Arizona | Retail | 191,758,455 |
Delinquent And Modified Or Extended Loans
Modified loans represented approximately 10.0% ($71.6 billion) of total U.S. CMBS issuance ($719.2 billion) as of June 2024. Table 2 shows the top five delinquent and modified loans by balance. The top five modified loans are backed by office, multifamily, and lodging properties.
By sector, lodging had the highest modification rate, at 22.1%, as of June. However, this standout rate is more a function of legacy modifications allowed soon after the onset of the COVID-19 pandemic; it is not an accurate indicator of current sector stress, as we'll note for the other property types. Retail loans had the second-highest modification rate, at 14.1%, reflecting a mix of modifications granted due to the pandemic and, of more concern, for loans commonly backed by retail malls that are unable to refinance and therefore granted extensions. The modification rates for office and multifamily, at 6.8% and 8.3%, respectively, are also revealing, as they indicate that the delinquency rates for those sectors would be notably higher if CMBS servicers had not granted modifications. Chart 3 shows the breakout of the delinquency rate and modified loan rate by property type.
Chart 3
The largest loan modified in June was 731 Lexington Avenue, which is secured by a 909,369-sq.-ft. fee simple interest office property in Midtown Manhattan. As year-end 2023, the DSCR was 2.08x and occupancy was 100.0%.
The loan was transferred to the special servicer on April 22, 2024, and is current. On June 11, 2024, according to the loan extension and modification agreement, the maturity date was extended four months to Oct. 11, 2024, to allow the borrower time to complete a refinancing and pay off the loan. The borrower made a principal curtailment of $10.0 million and paid all of the lender's costs and expenses. The loan will remain in a cash trap and in special servicing until paid in full.
Table 2
| Top five modified loans as of May 2024 | ||||
|---|---|---|---|---|
| Property | City | State | Property type | Outstanding balance ($) |
| 731 Lexington Avenue | New York | New York | Office | 490,000,000 |
| HP Plaza at Springwoods Village | Spring | Texas | Office | 103,700,000 |
| Sol y Luna | Tucson | Arizona | Multifamily | 90,000,000 |
| DUMBO Heights Portfolio | Brooklyn | New York | Office | 72,859,793 |
| Ambassador Waikiki II | Honolulu | Hawaii | Lodging | 67,745,634 |
The Special Servicing Rate Remained Constant
The overall special servicing rate remained constant month over month at 7.3% in June (see chart 5). By sector, the special servicing rate rose for office (49 bps to 11.0%) and multifamily (14 bps to 4.4%); and decreased for lodging (60 bps to 6.4%), retail (15 bps to 10.3%), and industrial (0.3 bp to 0.3%) loans. However, the overall special servicing rate remains well below the 9.5% peak reached in September 2020, despite increasing in recent months.
The largest loan to move into special servicing as of June is Lafayette Center. The mortgage loan is secured by a 48,968-sq.-ft. office property in Chantilly, Va. As of September 2023, the DSCR was 1.78x, and occupancy was 71.74% due to the K Hovnanian Homes (48.3% of net rentable area) expiring that month. The borrower is currently working with a broker to lease out the space.
The loan was transferred to the special servicer on Feb. 13, 2024, due to an imminent balloon or maturity default ahead of the Sept. 1, 2024, maturity. A Hello Letter was sent, and a pre-negotiation letter agreement (PNL) was executed. The special servicer is evaluating the borrower's request for an extension.
Chart 4
DQ Rates Increased For All Property Types
Office loans had the highest DQ rate by property type in June. By balance, the overall DQ rate increased for retail (65 bps to 6.2%; 261 loans; $7.5 billion), office (37 bps to 7.3%; 302 loans; $13.0 billion), multifamily (27 bps to 3.2%; 194 loans; $4.1 billion), lodging (19 bps to 5.5%; 129 loans; $5.6 billion), and industrial (9 bps to 0.5%; 15 loans; $291.2 million). Chart 6 shows the historical DQ rate trend by property type.
There were 163 newly delinquent loans totaling $4.6 billion in June, led by multifamily (54 loans; $1.0 billion), office (38 loans; $1.5 billion), retail (26 loans; $1.2 billion), lodging (10 loans; $475.9 million), and industrial (four loans; $118.2 million).
By property type, DQ composition rates increased year over year for office (to 37.5% from 32.4%), multifamily (to 11.9% from 6.8%), and industrial (to 0.8% from 0.8%) loans; and decreased for retail (to 21.6% from 30.7%) and lodging (to 16.1% from 20.6%) loans. Charts 7 and 8 show the year-over-year change in the property type composition for delinquent loans.
Chart 5
Chart 6
Chart 7
Several Large Loans Moved Out Of Delinquency
Despite the overall DQ rate increasing in June, 81 loans totaling $2.4 billion moved out of delinquency. Table 2 shows the top five of these loans by balance.
The largest loan to move out of delinquency was Milford Plaza Fee, which is secured by The Row, a 1,331-room hotel in Midtown Manhattan. As of September 2023, the loan's DSCR was negative 0.83x.
The loan was transferred to the special servicer on June 1, 2020, due to an imminent monetary default after the ground lease hotel tenant stopped paying rent to the borrower in April 2020. The lender has engaged counsel and is pursuing foreclosure with a cooperative sale process. The signed cooperation agreements allow for a cooperative sale or assumption or transfer of title to the lender at their discretion. The tenant has also remit net cash flow generated from the property to date and going forward. The lender is evaluating an offer for a reinstatement and assumption.
Table 3
| Top five loans that moved out of delinquency in June 2024 | ||||
|---|---|---|---|---|
| Property | City | State | Property type | Outstanding balance ($) |
| Milford Plaza Fee | New York | New York | Lodging ground lease | 275,000,000 |
| 590 Madison Avenue | New York | New York | Office | 200,000,000 |
| Parkmerced | San Francisco | California | Multifamily | 177,500,000 |
| 65 Broadway | New York | New York | Office | 136,000,000 |
| Uline Arena | Washington | Washington, D.C. | Multifamily | 120,000,000 |
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: | Sabrina Chiang, New York + 1 (347) 325 4501; sabrina.chiang@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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