Report offers insights into commercial real estate loan performance
The commercial real estate market faced another challenging month, as delinquencies in commercial mortgage-backed securities (CMBS) continued to rise in June.
The delinquency rate among KBRA-rated CMBS jumped 36 basis points month over month to 5.07% in June, according to the rating agency’s new report.
This spike was largely driven by loans transitioning from “performing matured balloon” to “nonperforming matured balloon” status – which means borrowers couldn’t refinance or pay off their loans when they came due.
While the headline numbers may seem concerning, it’s not all bad news. The total distress rate, which includes both delinquent and specially serviced loans, held steady at 8.45%. This stability suggests that while more loans are becoming delinquent, the rate at which they’re entering special servicing – a more severe status – has slowed.
The office sector took the biggest hit, with $609.6 million in loans transitioning to distressed status in June. This was followed by retail ($400.2 million) and multifamily ($224.1 million). Two distressed KBRA-rated office properties included the Lafayette Centre ($243 million) and Merritt on the River Portfolio ($197.7 million).
Interestingly, the multifamily sector showed signs of stress. Its distress rate increased by 45 basis points, the largest jump among all sectors. Multifamily also experienced the largest rise in delinquency (45 bps) among the three property types. Notably, 10 loans totaling over $211.7 million became delinquent but haven’t yet been transferred to special servicing.
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On a slightly positive note, the mixed-use sector saw its distress rate decline by 28 basis points, a reversal from the previous month’s 170 basis point increase.
KBRA’s report covers a comprehensive analysis of their $321.9 billion rated universe of US private label CMBS, including conduits, single-asset single borrower and large loan transactions.
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