CRED iQ’s overall distress rate for CMBS fell 36 basis points in December to 7.17% from 7.53%.
This notched a second straight monthly decrease and matches the August metric. However, office, multifamily, retail, and hotel sectors all increased significantly. The main driver behind the overall metric for all property types was caused by the resolution behind several massive industrial portfolios that helped bring the weighted average down.
CRED iQ’s overall distress rate aggregates the two indicators of distress – delinquency rate and special servicing rate – into an overall distressed rate. This includes any loan with a payment status of 30+ days or worse, any loan actively with the special servicer, and includes non-performing and performing loans that have failed to pay off at maturity.
The core delinquency rate fell, albeit modestly, from 5.28% to 5.22%. Our special servicing rate, which represents the percentage of CMBS loans that are with the special servicer (includes both delinquent and non-delinquent), fell by 13 basis points to 6.72%. following a modest increase in November.
Overall distress rates for multifamily jumped from 2.94% in November to 3.99% this month. Additionally, the hotel’s distress rate increased 159 basis points to 8.00, while retail’s distressed rate went up by over 180 basis points in one month.
The industrial segment saw the greatest decrease in overall delinquency—dropping a whopping 3.8% to 0.6% –the 10th month in 2023 with a sub 1% overall distress rate. As we reported in November, a major factor was the $2.2 billion industrial portfolio (BX Trust 2021-ACNT) that failed to pay off on its initial November 9, 2023 maturity date is now listed as current by its servicer, Key Bank.
The office segment saw the greatest month-over-month overall distress rate increase from 6.80% to 9.95%. A significant factor was the $285 million The Gateways portfolio (CSMC 2021-GATE), a 1.7M-sf portfolio consisting of three properties with a mix of office and retail space in Newark, NJ. The portfolio failed to pay off at its initial December 9, 2023, maturity date, causing the payment status to change from current to performing matured.
CRED iQ is a commercial real estate data & analytics platform used by investors, lenders, brokers, and other CRE finance professionals. The easy-to-use interface is fully equipped with official loan and financial data. The platform is supplemented with true borrower and ownership contact information, valuation software and refinance models.
As an official market data provider, CRED iQ’s is powered by over $2.0 trillion of audited loan and transaction data that includes all property types and geographies. CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition & lending opportunities, market analysis, underwriting, and risk management.
With higher rates and a challenging lending environment, more and more borrowers are seeking to modify their loans. CRED iQ analyzed all modifications that occurred in 2023 within the securitized universe, including all CMBS, CRE CLO, SASB, Fannie Mae, Freddie Mac, and Ginnie Mae.
In total, $13.6 billion across 441 loans were modified in 2023. The highest volume of modifications occurred in the second quarter of the year. Single Borrower Large Loan (SBLL) deals represented almost half of this year’s modifications, followed by CRE CLO deals. Office ($4.6B) and multifamily ($3.3B) loans were modified the most in 2023.
Loan Modifications by Count
The number of modifications in 2023 almost doubled compared to 2022. Extending the loan term has been the most popular modification type in 2023. CRED iQ predicts maturity extension modification will continue to be a popular tool for borrowers in 2024, when $209.6B of CRE debt is slated to mature across the securitized sectors.
Some of the largest loan modifications in 2023 include:
The 831,000-sf office building at 375 Park Avenue backs $782.8M in debt and was originally set to mature in May 2023. The maturity date was extended by a year.
The $536.0M loan backed by the Aon Center, a 2.8M-sf office tower in Chicago, was originally set to mature in July 2023. The loan was modified by extending maturity by three years with no change to the interest rate.
Two modifications occurred in 2023 for the $219.6M loan secured by Aven, a 563-unit multifamily building located in Los Angeles, CA. The first modification took place in May to convert the loan from LIBOR to SOFR. The second modification occurred in September when the one-year maturity extension was utilized to extend the original March 2025 maturity to March 2026.
Property Type & Loan Balance
Deal Type
CRED iQ subscribers get full access to all modified loans, their modified loan terms, full loan details, financials, and borrower contact information.
About CRED iQ
CRED iQ is a commercial real estate data & analytics platform used by investors, lenders, brokers, and other CRE finance professionals. The easy-to-use interface is fully equipped with official loan and financial data. The platform is supplemented with true borrower and ownership contact information, valuation software and refinance models.
As an official market data provider, CRED iQ’s is powered by over $2.0 trillion of audited loan and transaction data that includes all property types and geographies. CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition & lending opportunities, market analysis, underwriting, and risk management.
CRED iQ and Cedars Hill Group team up on another Case Study that analyzes a mall in Ohio that resulted in a loss of $92.7 million.
In our last two case studies on The Gas Company Tower and Crossgates Mall we reviewed the history of those properties that led up to their troubles and eventual liquidations that resulted in massive losses for CMBS bond holders. Igal Namdar of Namdar Realty Group, who has been one of the most prolific buyers of distressed malls in the US, made the distinction between distressed and over levered in a Bloomberg interview by pointing out that just because a property has too much debt doesn’t mean it’s a bad property. Commercial real estate has been prominently featured in the press this year and has come to be regarded as a poisonous asset class. However, this viewpoint misses Namdar’s distinction entirely and risks overlooking value-laden investment opportunities. Accordingly, this case study is going to speculate on what the future may hold after these “distressed” properties deleverage through foreclosure or bankruptcy.
CRED iQ’s unique data platform is a tool that can help identify opportunities like properties that are going to enter receivership, or properties that need recapitalization or refinancing, and properties that need capital for revitalization. In today’s rapidly changing market this tool can be combined with creative and innovative financing and other insightful solutions to navigate and unlock value in the ongoing credit cycle. In choosing the property for this case study we turned to CRED iQ’s monthly listing of liquidated loans and coincidentally found a property that Igal Namdar recently purchased.
The Mall at Tuttle Crossing headlines CRED iQ’s listing of liquidated loans for the largest realized loss to the CMBS trust after it was purchased in October by a partnership of Namdar Realty Group, Mason Asset Management, and CH Capital Group for $19.5 million which was below the Franklin County Auditor’s assessment of $50 million and the April 2013 appraisal of $240 million. Tuttle Crossing is just the latest in a long series of enclosed malls selling at pennies on the dollar, but it affords us the opportunity to learn what opportunities high-quality, but over levered properties like this may present to discerning investors.
The latest financials we have available are from the six months ending in June and show net cashflow (NCF) of just over $2 million, which provides the Namdar led group with a rough 20% cash-on-cash annualized yield on their investment. Namdar is well-known for their strategy of buying malls like Tuttle Creek at attractive cash-on-cash yields and operating the property as-is, forgoing big and expensive capex investments, instead focusing on bringing in new tenants at cheaper rents which they can afford given their low investment basis. Most municipalities prefer a new owner to inject new capital and redevelop underperforming properties and Namdar has received some criticism for their strategy but many times there are major impediments to redevelopment.
In Tuttle Crossing’s case the major barrier to redevelopment is the fact that the anchor boxes are still owned by the department stores that once filled those spaces. The former Sears box is listed for lease or sale as a mixed-use redevelopment opportunity which would be ideal for retail, multifamily, hotel, office, and industrial. The fact that the site is parceled out and that the Namdar group does not own the site in its entirety makes redevelopment far less attractive for the new owners. The demographics of the area are favorable for a combination of retail, hotel, and multifamily or office if Namdar were able to bring in some higher end tenants turning the property into a living and entertainment destination, but significant capex would be required to do so.
While the ownership of the site is a major impediment there are other recent developments that have made redevelopment of these properties more attractive. First, the recently passed Inflation Reduction Act (IRA) has created new tax credits for green energy manufacturing, solar, and battery storage which can help owners and developers realize significantly more operational savings and offset capex costs. Second, the advent of Commercial Property Assessed Clean Energy (C-PACE) financing has opened up a new and attractive source of capital for the commercial real estate industry. C-PACE utilizes a tax assessment mechanism typically used in tax increment financing (TIF) to provide owners and developers with cheap, long-term capital to make energy efficient investments in their properties. This financing can fund a significant part of any redevelopment project and helps to offset the tightening in credit we have seen from other commercial real estate lenders.
C-PACE financing can be combined with construction financing or replace costly mezzanine or equity financing. Construction financing is typically short-term whereas C-PACE financing can be structured to match the usable life of the installed equipment and be up to 30 years in duration. The tax assessment levied against the property which is used to pay back the lender can usually be passed along to tenants in the form of increased rent. A report published by JLL in January 2022 estimated that properties with green certifications result in a 6% rent premium which demonstrates that tenants are willing to pay a premium for energy efficient properties. A new Westin in Milwaukee was developed which utilized C-PACE financing and was able to pass along the assessment cost via a per day surcharge on guest bills. C-PACE financing is cheaper than equity or mezzanine financing and can be as much at 30% of a capital stack resulting in much higher returns for the developer and their investors.
Ohio has already passed enabling C-PACE legislation and the Columbus-Franklin County Finance Authority administers the C-PACE lending program. In the case of the Mall at Tuttle Crossing the ability to utilize C-PACE financing could align the interests of the Namdar led group with the Columbus-Franklin County who surely wants to see their former premier retail property be revitalized and create new jobs for their community. For the Namdar-led group the ability to borrow at T+400-500bps for 30 years is an attractive source of long-term capital that can be accretive to their bottom line. Additionally, the cost savings from lowered energy usage and tax credits, and the ability to give an older property a modern upgrade and charge premium rents could tip the scales in favor of redevelopment of the site.
The benefits of new financing mechanisms like C-PACE take time to be fully realized by the industry and an awareness must grow among investors and industry participants before its full potential can be realized. CRED iQ provides a treasure trove of information that can help municipalities, lenders, and other industry participants identify these opportunities across the country to revitalize and improve commercial properties.
About Joshua J. Myers, CFA
After a successful 20+ year investing career, Joshua Myers, CFA launched Cedars Hill Group to bring large market expertise to broader audiences. He primarily serves as an outsourced CIO/CFO for family offices, RIAs, and small-to-medium sized businesses. He started as an assistant trader at Susquehanna Investment Group during the Russian default and LTCM failure in 1998. Afterwards, he was Head of Fixed Income at Penn Mutual Life Insurance during the Global Financial Crisis of 2008-2009. He traded distressed CMBS securities in the aftermath of the GFC at Cantor Fitzgerald and most recently was Chairman of the Board for an oil production company during the COVID pandemic. He is a lifelong student of financial markets and writes about current events with a focus on the art of decision making and cognitive psychology.
For more market commentary from Josh subscribe to his Substack at Cedars Hill Group (CHG). You can also follow Josh on LinkedIn and X.
About CRED iQ
CRED iQ is a data & analytics platform used by commercial real estate brokers, lenders, investors, and appraisers. It provides an easy-to-use interface, comprehensive and official loan data, true borrower and owner contact information, and a built-in valuation tool. As an official data provider, CRED iQ’s precise and audited data includes across all property types and geographies, all of which help CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition and lending opportunities, market analysis, underwriting, & risk management.
CRED iQ prepared for the year ahead in commercial real estate by analyzing securitized commercial mortgages with maturity dates scheduled in 2024 and 2025. CRED iQ’s database has approximately $210 billion in commercial mortgages that are scheduled to mature in 2024, with an additional $111 billion of CRE debt maturing in 2025. In total, CRED iQ has aggregated and organized a total of $320 billion of commercial mortgages slated to mature within the next 24 months.
The dataset included is comprised of loans securitized in CMBS conduit trusts, single-borrower large-loan securitizations (SBLL) and CRE CLOs, as well as multifamily mortgages securitized through government-sponsored entities.
The next 12 months have the highest volume of scheduled maturities for securitized CRE loans over a period of 10 years ending 2033. Let’s dive into the details.
Commercial Mortgages Maturing
Includes CMBS, Insurance, Bank/Balance Sheet, Agency, and Debt Funds
In 2024, $659 billion in commercial loans are slated to mature
In 2025, $539 billion in commercial loans are slated to mature
In total, $1.2 Trillion will mature in the next 24 months
Maturity by Year: Active Loan Balances of Securitized Universe
CRED iQ’s securitized universe includes CMBS, SBLL, CRE CLO, Freddie Mac, Fannie Mae, and Ginnie Mae
2024 and 2025 have the largest aggregate balances of maturing loans
In 2024, $210 billion of CRE debt will mature.
In 2025, $111 billion of CRE debt will mature.
CMBS Issuance Trends
Since 2012, CMBS issuance has averaged $76 billion per year
The market significantly slowed down in 2008-2010 due to the Great Financial Crisis
In 2021, CMBS issuance totaled $111 billion as the market rebounded after the Covid shutdown.
Property Type Analysis
Multifamily represents the largest asset class of maturing loans. $113 billion (35%) of multifamily will mature these next 24 months.
The second-largest sector is office ($46.6 billion) then hotel with $42.3 billion.
Retail loans coming due over the next 24 months total $31 billion.
Industrial loans totaling $30 billion are slated to mature in 2024 or 2025.
Self-storage loans have approximately $5.3 billion coming due over the next two years.
Search all Commercial Property Types on the CRED iQ Platform
CRED iQ is a data & analytics platform used by commercial real estate brokers, lenders, investors, and appraisers. It provides an easy-to-use interface, comprehensive and official loan data, true borrower and owner contact information, and a built-in valuation tool. As an official data provider, CRED iQ’s precise and audited data includes across all property types and geographies, all of which help CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition and lending opportunities, market analysis, underwriting, & risk management.
Overall distressed levels remain relatively unchanged, while industrial segment’s distressed rates almost double this month.
Following 10 consecutive increases CRED iQ’s overall distress rate for CMBS fell modestly in November by 5 basis points to 7.52%. There are important variables impacting these results—including some previously reported anomalies in the October print.
The core delinquency rate increased by 13 basis points to 5.27% – after recording a minor reduction in October. Similarly, our special servicing rate, which represents the percentage of CMBS loans that are with the special servicer (includes both delinquent and non-delinquent), increased by 6 basis points to 6.84%.
Looking across the CRED iQ Distressed Rate Heat Map, the retail segment enjoyed its second consecutive month turning in an overall distress rate under 10%. On a month-over-month basis, however, retail overall distress increased by 35 basis points to 9.82% – putting a three month/sub 10% trend on thin margins.
Industrial saw the greatest month-over-month distress increase from 1.81% to 4.53%. The industrial segment has spent most of 2023 below 1.0% until October. One significant factor was the $2.2 billion industrial portfolio (BX Trust 2021-ACNT) that failed to pay off on its initial November 9, 2023 maturity date. The failure to pay off at maturity caused the payment status to change from current to performing matured. There are three 12-month extension options, allowing for an extended maturity through November 2026. The floating rate loan, which was originated in October 2021, is structured with an interest rate that equates to one-month LIBOR plus a 2.37% spread rate, which has now spiked to 7.82%. The sponsor of the loan, Blackstone, had their interest rate cap agreement expire on November 15, 2023, which had an original strike rate of 3.50%.
Lodging, multifamily and the well-watched office segments all trimmed their Distressed Rate month-over-month modestly.
Self storage continued to dominate the overall delinquency rate performance at 1.33%, 2 basis points off the 2023 high of 1.35%. Self storage logged three months with 0% delinquency, and most months in 2023 were in the single digits.
Nearly half of the delinquencies were categorized as Non-Performing Matured Balloon. Approximately 25% were 90+ Days Delinquent and just below 20% were Performing Matured Balloon.
CRED iQ’soverall distress rate aggregates the two indicators of distress – delinquency rate and special servicing rate – into an overall distressed rate. This includes any loan with a payment status of 30+ days or worse, any loan actively with the special servicer, and includes non-performing and performing loans that have failed to pay off at maturity.
As with the October report, we caution that November’s results are inconclusive from a trending perspective. With that said, it is noteworthy that all but 2 defined segments logged reduced delinquency month over month (the Other category saw an increase).
About CRED iQ
CRED iQ is a data & analytics platform used by commercial real estate brokers, lenders, investors, and appraisers. It provides an easy-to-use interface, comprehensive and official loan data, true borrower and owner contact information, and a built-in valuation tool. As an official data provider, CRED iQ’s precise and audited data includes across all property types and geographies, all of which help CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition and lending opportunities, market analysis, underwriting, & risk management
CRED iQ is a data & analytics platform used by commercial real estate brokers, lenders, investors, and appraisers. It provides an easy-to-use interface, comprehensive and official loan data, true borrower and owner contact information, and a built-in valuation tool. As an official data provider, CRED iQ’s precise and audited data includes across all property types and geographies, all of which help CRE professionals leverage CRED iQ for a wide spectrum of use cases such as uncovering acquisition and lending opportunities, market analysis, underwriting, & risk management
Understanding current interest rates, DSCRs, LTVs, Debt Yields and valuation has never been more important during this tightening period. CRED iQ analyzed recent loans issued this year and compared them to loans from a decade earlier. Our analysis took a deep dive into the underwriting of the same asset for two different loans during two different commercial real estate cycles. One was in 2013 that was fresh out of the great financial crisis of 2008/2009 and the most recent loan was issued in June 2023.
Property
The 11 West 42nd Street Property is a 33-story CBD office building containing approximately 943,701 SF of gross rentable area. and located within the Grand Central submarket of New York City. The property was constructed in 1927 and renovated in 1978 and then later on in 2018. The borrower of both of the loans analyzed is Tishman Speyer and Silverstein Properties.
2013 Loan
On June 13, 2013, Goldman Sachs originated a $300 million senior loan on this asset. Appraised for $570 million ($604/SF) at the time of loan origination, the loan was leveraged at an all-in 52.6% LTV since there was no other subordinate debt or mezzanine financing. This appraised value suggested an implied cap rate of 4.77%. At the time of loan origination, Tishman & Silverstein enjoyed an $88.5 million cash out with this refinancing.
Terms of the loan included a 4.053% interest rate and a 10-year loan term that was full-term interest only. Annual debt service equated to $12.2 million. Based on the underwritten net cash flow of $27.2 million (as of 2013) and an underwritten occupancy of 98.4%, the DSCR on the loan equaled 2.21x.
2023 Loan
Fast-forward ten years of interest-only payments and annual free cash flows after debt service of approximately $15.0 million, it was time for a new loan. This time around, Tishman & Silverstein were able to secure a much smaller loan, with a much higher interest rate. Let’s dive into the numbers.
The new loan was originated in June 2023 by several originators (Bank of America, UBS, and LMF Commercial) and totaled $274.0 million on the senior note. In addition to the $274 million senior loan, Bank of America provided the borrower with $56 million in mezzanine financing. The total debt package for this new loan totals $330 million compared to the 2013 loan of only $300 million. The appraised value this time around was $555 million ($577/SF) – the new collateral square footage was 960,578 square feet. LTVs were 49.4% on the senior loan and 59.5% on the total debt. Based on the underwritten net cash flow of $28.6 million, the appraised value’s implied cap rate is 5.16%!
Terms of this loan were drastically different compared to the loan made ten years ago. The loan’s interest rate is 7.44% (339 basis point increase) and is full-term interest only with a maturity date in June 2028 (5-year loan). Underwritten with $28.6 million in net cash flow, the debt yield on this loan was 10.4% compared to the 2013 loan that had a debt yield of 9.10%.
Annual debt service payment is $20.4 million (compared to $12.2 million last time). In order to secure the loan, the borrower was required to infuse $14 million of equity (compared to cashing out $88.5 million the last time). The mezzanine loan’s interest rate carries a 14.0% rate, for an additional annual burden of $7.8 million/year. Total debt service for this debt package totaled $28.2 million, leaving approximately $401,189 of free net cash flow for the borrower per year.
How do interest rates impact commercial real estate if all else stays the same? About $15 million a year of free net cash flow for this borrower.
NEW YORK and PHILADELPHIA: CRED iQ, the fastest growing provider of commercial real estate (CRE) data, analytics and valuation is pleased to announce the expansion of its Engineering and Data teams as the company’s customer base expands in number and sophistication
“CRED iQ’s clients are expanding their engagements with more customized data and technology products” stated Mike Haas, Founder and CEO of CRED iQ “So excited to welcome these new talented colleagues who bring important depth and diversification as we play a wider role in the CRE marketplace.”
Senior Engineers Reid Russell and Roman Zagrebnev bring a wealth of experience to CRED iQ including previous roles at NavigatorCRE, Cognizant, Citi, Pinterest and Convex. QA Engineer Riley Rood brings invaluable perspectives and depth to the company’s quality assurance processes. “They have all hit the ground running” noted CTO Ryan Garrett. “Our expanded team is now able to deliver the operational vision that we set forth earlier this year—we have commenced a very exciting new chapter in our evolution.”
CRED iQ also expanded its data team with the addition of Katherine Woods as Quantitative Data Analyst. Katherine’s mathematics & statistical background includes a successful career at Kroll Bond Rating Agency—which will serve her well in this exciting new role.
CRED iQ continues to expand its user community and Commercial Real Estate (CRE) finance professionals are drawn to the company’s precise data, highly intuitive platform and powerful analytics suite. Meanwhile, clients are increasingly leveraging customized data and platform solutions as larger organizations embrace the company’s unique and powerful capabilities.
“Data precision is vital in today’s challenging CRE marketplace” said Chris Aronson, Chief Commercial Officer, “however, clients today are equally focused upon cost reduction and meaningful workflow efficiencies. CRED iQ is uniquely positioned to deliver upon both imperatives concurrently, and these new talented professionals will play critical roles.”
CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. If you would like to learn more about CRED iQ’s products and services, please contact team@cred-iq.com or visit us at cred-iq.com
CRED iQ monitors distressed rates and market performance for nearly 400 MSAs across the United States, covering over $900 billion in outstanding commercial real estate (CRE) debt. Distressed rates include loans that are specially serviced, delinquent (30 days past due or worse), or a combination of both.
Out of the 50 largest MSAs tracked by CRED iQ, the analysis split the MSAs into two groups: Primary/Gateway and Secondary markets. Average distressed rates for the Gateway/Primary market cohort are 8.8% while the secondary markets averaged 9.2%.
Notable markets within the Primary/ Gateway cohort with the largest levels of distress included Minneapolis (51.5%), Chicago (19.7%), and Charlotte (19.6%). Minneapolis remains an outlier due to a handful of extremely large loans that are in distress. The strongest performing markets within the Gateway/Primary segments include San Diego (0.2%), Seattle (0.6%), and San Jose (1.0%). Surprisingly, the analysis illustrates that four of the seven gateway markets are showing significant levels of distress as of the October 2023 reporting period. The worst performing gateway markets include Denver (14.2%), Washington DC (11.0%), New York City (8.4%), and Los Angeles (5.4%). On the other hand, the best performing gateway markets are Boston, Miami and Seattle.
Comparing the levels of distress across the 25 largest markets within the Secondary cohort, Hartford (31.4%), Portland, OR (15.4%) and Milwaukee (13.7%) are the highest. Hartford ranks number two overall across all 50 markets. A significant contributor to the elevated levels of distress was the recent special servicer transfer of the $79 million office loan for CityPlace I. The loan, which is secured by an 884,000-SF CBD office building transferred to the special servicer (Midland) on October 11, 2023.
Some of the strongest performing secondary markets with the lowest level of commercial real estate distress include Salt Lake City (0.4%), Sacramento (0.7%), and Louisville (2.6%). Ten of the 25 secondary markets are showing distress levels of 10.0% or higher.
CRED iQ’s early signals of upcoming distress include loans that have been added to the servicer’s watchlist for credit-related issues. Issues include weak financial performance, low occupancy, high tenant rollover, upcoming maturity risk among other reasons to be flagged as possible troubles. Some notable loans that were added to the watchlist in October include:
Grand Central Plaza (Office: 622 Third Avenue, NYC) – $260 million, Low DSCR
As reported in CRED iQ’s October Delinquency Report, the Office, Retail/Mixed Use and Lodging segments drove the highest levels of distress rates as measured by property type. These segments had a major impact on market distress rates across the country. The WeWork bankruptcy filing announced this week has been impacting distress levels in markets such as New York City all year.
The Washington DC Market (the #2 Gateway market at 11%) was impacted by Office distress. Examples include 1615 L Street NW, a 417,383 square foot office building which transferred to the Special Servicer for Imminent Monetary Default
San Francisco (coming in at #4 in the Primary/Gateway cohort) saw continued turbulence across office, retail and lodging. The transfer of iconic Hilton San Francisco, a 1,900 key hotel along with the smaller Hilton Parc 55 for imminent monetary defaults of a combined valuation of over $1.5 billion. On the retail front, the $1.2 billion Westfield San Francisco was transferred for imminent monetary default earlier this year.
In summary, Minneapolis holds on to the number one position in our study as it has for well over a year, expanding its distress rate to 51.5% (up from 33.6% in our June report). Hartford, which leads the Secondary cohort, comes in at second place overall with a 31.4% distress rate. Chicago and Charlotte are neck-and-neck with 19.7% and 19.6% respectively earning them third and fourth place overall in our study.
The CRED iQ overall distress rate for CMBS increased by 14 basis points to 7.57%, the 10th consecutive monthly increase this year. The core delinquency rate decreased by 5 basis points – snapping 9 months of increases in 2023. Similarly, our special servicing rate, which represents the percentage of CMBS loans that are with the special servicer (includes both delinquent and non-delinquent), trimmed 5 basis points from the September print.
Looking across the CRED iQ Distressed Rate Heat Map, all property types are in the red — with the exception of retail which achieved the most significant reduction in overall distress rate in October. Meanwhile, self-storage landed in the red for the first time in two years.
The retail segment saw a significant reduction in its overall distress rate, logging 9.47% in October, a reduction of 1.71% from September’s rate of 11.18%.
Industrial’s overall distressed rate was 1.81% in October compared to 0.70% in September – an uncharacteristic spike. In fact, October marks the first month that the Industrial segment posted a rate above 1.0% this year. It should be noted that a significant portion of the spike is attributable to a single property. The $1.43 billion floating-rate industrial loan, which was securitized in a Single-Borrower, Large Loan deal in 2021 was originally collateralized by 109 properties totaling over 14M square feet. The loan has since been paid down to $952 million as of October 2023 due to the release of 32 properties. The loan failed to pay off at its maturity date in October 2023. CRED iQ’s data indicates that the loan’s interest rate cap agreement expired on October 9, 2023. Due to the floating-rate, interest-only structure of this industrial loan, annual debt service payments have almost tripled since January 2022. January 2022’s monthly debt service totaled $2.1 million ($25 million annualized) compared to this month’s debt service of $5.6 million ($67 million annualized).
Lodging continued to see its overall distress rates rise – adding 58 basis points to 8.92%. Similarly, Multifamilylogged a 42-basis point increase to 5.08%. Officeremains the segment leader in overall distress at 10.51% – although trimming 24 basis points of Overall Distress vs. September.
Finally, the most resilient self-storage segment posted its biggest jump of the year to 1.35% — compared to 0.10% in September Like industrial, this marks the first posting above 1.0% in 2023.
CRED iQ’soverall distress rate aggregates the two indicators of distress – delinquency rate and special servicing rate – into an overall distressed rate. This includes any loan with a payment status of 30+ days or worse, any loan actively with the special servicer, and includes non-performing and performing loans that have failed to pay off at maturity.
A severely limited refinancing and a ‘higher for longer’ interest rate environment continues to contribute to sustained increases in commercial real estate distress. With the Federal Reserve holding rates unchanged at the November meeting, perhaps the market is approaching the peak of interest rate increases, but that remains to be seen.
