Newly distressed office properties exceed $1 billion
The delinquency rate for private-label commercial mortgage-backed securities (CMBS) increased again in November, according to KBRA’s latest report on CMBS loan performance trends.
The delinquency rate rose to 5.95% ($19 billion), up 46 basis points (bps) from 5.49% ($17.5 billion) in October. Meanwhile, the overall distress rate, which includes both delinquent and current but specially serviced loans, climbed 30 bps to 8.95% ($28.6 billion) from 8.65% ($27.5 billion) in October.
The office sector continued to be the primary driver of the increasing distress, with a notable spike in delinquencies for the second consecutive month. Newly distressed office loans added over $1 billion in November, pushing the sector's total distress rate above 14%.
KBRA observed that 26 office loans became newly distressed during the month, including high-profile properties like 225 Bush Street ($350 million across five transactions), 5 Penn Plaza ($260 million in four conduits), and 555 11th Street ($120 million in two conduits).
The report highlighted that $2.1 billion in CMBS loans were newly added to the distress rate in November. Of these, over half (51.4%) were attributed to imminent or actual maturity defaults. Beyond the office sector, distress also impacted mixed-use properties (21.6%, $462.7 million), retail properties (7.2%, $155.4 million), and multifamily properties (5.7%, $123.4 million).
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Mixed-use properties saw the largest percentage increase in distress, rising by 136 bps, largely driven by the Prime Storage Fund II loan ($340 million), which shifted from performing to nonperforming status. By contrast, the "Other" property category experienced the largest percentage decrease in distress, dropping by 171 bps after the Milford Plaza Fee loan ($275 million) returned to master servicer control.
KBRA reported that distress in the office segment reached 14.18%, with significant contributors including properties with balances exceeding $100 million. This trend reflects the ongoing struggles of the office market amid shifts in workplace dynamics and increased scrutiny from lenders.
KBRA's observations are based on its $319.6 billion-rated universe of US private-label CMBS, encompassing conduits, single-asset single borrower (SASB), and large loan (LL) transactions.
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