CRED iQ’s research team has been closely monitoring loan modifications during this period of significantly elevated interest rates. Loan modifications surged in 2023 as borrowers worked with lenders to achieve loan extensions and other alterations to the loan covenants.
The number of modifications in 2023 more than doubled compared to 2022. Of the $162 billion in securitized commercial mortgages which matured in 2023, 542 loans were modified with cumulative balances just over $20 billion, which is a 150% increase from the amount of modifications that occurred in 2022. According to CRED iQ’s 2024 CRE Maturity Outlook, 2024 will see $210 billion in securitized maturities. CRED iQ predicts that the modification trend will continue to surge as more special servicers decide to “pretend and extend” versus foreclose on these commercial properties.
For example, within the office sector only 26% of the $35.8 billion of office CMBS loans that matured in 2023 was actually paid off in full, as borrowers struggled to get refinancing or to sell their properties. CRED iQ’s analyzed 593 office loans that transferred to the special servicer since February 2022. Out of these specially serviced office loans, approximately 13.7% were modified, 14.0% returned to the master servicer as corrected, 8.4% paid off, and the remaining 63.9% are still with the special servicer.
Extending the loan term has been the most popular modification type in 2023 and so far in 2024 (excluding grouping categories Other and Combination). By deal type, CRE CLO deal led all categories and comprised nearly half of all loan modifications, followed by SBLL deals.
Some of the largest loan modifications thus far in 2024 include:
- One Market Plaza, a 1.6 million SF office building int eh South Financial District of San Francisco, is backed by a $850.0 million loan (originally $975.0 million). The loan was modified in February 2024 to extend the maturity to February 2026, a two-year extension from the original maturity. In addition to a maturity extension, a forbearance period was entered as part of the loan modification process resulting in a $125.0 million principal pay down in February 2024 plus $59 million in additional payments for closing costs, tenant improvements, leasing commissions, and escrow & interest.
- Herald Center, a 249,063 SF mixed-use building (retail/office) in the Chelsea submarket of New York City is backed by a $255.0 million loan. The loan was modified and transferred to the special servicer in January 2024 due to maturity default. The maturity of the loan was extended to January 2025.
About CRED iQ
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