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Office Lease Expirations – Looking Ahead 18 Months

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CRED iQ
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CRED iQ examined major lease expirations for CMBS office collateral for the near-term, 18-month horizon, as well as the next 10 years. Downsizing and non-renewal by office tenants is a contributing factor to headwinds facing the office sector, which has been plagued by employee-employer workplace dynamics and tenants’ need to shed space, reduce real estate costs, and right-size physical footprints during a period of economic uncertainty.

A high-level view of lease expirations provides a general sense, or foreboding in some instances, of the mechanics that the office sector needs to work through as the property type falls out of favor with lenders, investors, and other commercial real estate industry constituents. Lease expiration analysis also serves as a tool to evaluate when and where the next pockets of elevated office distress will materialize.

Office collateral has been a primary contributor to incremental distress in commercial real estate throughout 2023. CRED iQ’s distressed rate for CMBS office loans, which includes delinquent loans and specially serviced loans secured by office collateral, was 5.8% as of April 2023 and has increased for six consecutive months. Furthermore, the distressed rate for office collateral has more than doubled compared to 12 months prior and is at its highest level since CRED iQ started tracking such data in early 2020.

CRED iQ examined over 21,000 major leases for CMBS office and mixed-use collateral properties. For this exercise, major leases were defined as one of the five-largest leases by percentage of net rentable area (NRA) for a particular property. Additionally, office collateral securing CMBS does not represent the entire office market, but rather serves as proxy to identify challenges facing the larger universe of office properties.

Takeaways from our observations include over 500 million SF of NRA and 17,000+ leases scheduled to expire over the next 10 years for office properties secured by CMBS loans. There is nearly 53 million SF of space that has already expired in 2023 or is scheduled to expire during the remainder of 2023. Scheduled lease rollover is at its highest in 2024 and 2025 — each year will individually have more than 60 million SF rolling. The aggregate number of leases with expiration dates in 2024 and 2025 was more than 5,000. Scheduled lease expirations subsequently taper off in 2026 (53 million SF) and 2027 (50 million SF) before surging to 55 million SF in 2028. As a caveat to these figures, the underlying data by its nature is historical, imperfect, and may not reflect recent extensions that tenants may have signed.

Lease expiration figures were further parsed by geographic location to provide a granular view by MSA. A detailed view of lease expirations by individual office market helps identify which markets’ vacancy rates are at risk of being stressed. The data was parsed to isolate the second half of 2023 and the full year 2024. In both time frames, the New York MSA had the highest amount of space and the highest number of leases scheduled to expire. In total, the New York MSA had more than 14 million SF of leases scheduled to expire in the next 18 months — 4 million SF is scheduled to expire in the second half of 2023 and 10 million SF is scheduled to expire in 2024. In the second half of 2023, notable MSAs with elevated lease rollover included Washington, DC and Philadelphia with both markets ranking in the Top 5 for that category. The Washington, DC and Philadelphia markets both have distressed rates for office properties in excess of 10%. Looking forward to 2024, focus shifts to the Chicago and Atlanta MSAs. Chicago has 3 million SF of space expiring in 2023 with a most recent distressed rate of 19.5% for office collateral. Atlanta has 2.1 million SF of leases scheduled to expire in 2024 with a 20% distressed rate for office as of April 2023.

To be fair, many tenants will renew or even expand footprints in certain office buildings. However, rising vacancy rates — in excess of 20% and even stretching to 30% in certain markets — indicate a high level of risk that many tenants will downsize or fail to renew altogether. Lease expirations can have several possible outcomes for office landlords. From a positive perspective, a renewal or new direct lease may allow rents to reset higher if market conditions are favorable. However, high vacancies and downward pressures on rental rates may lead to reductions in cash flow and subsequent distressed scenarios.

About CRED iQ

CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.

The platform also offers a highly efficient valuation engine which can be leveraged across all property types and geographies. Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.

CRED-iQ-CMBS-April-2023-Distressed-Workouts-and-Payoffs-1Download

CRED iQ Launches Real-Time Distress Alerts

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CRED iQ
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0

NEW YORK and PHILADELPHIA CRED iQ, the fastest growing provider of commercial real estate (CRE) data, analytics and valuation is pleased to announce the launch of a breakthrough real-time data feed which is ideally suited for the current CRE environment.     

Introducing CRED iQ’s Daily Distress Alerts.  As soon as any property, loan or portfolio hits key credit triggers that signal a potential or imminent default (such as a missed payment, increased number of days delinquent or transfer to the Special Servicer) a real-time alert, fully equipped with pertinent data is sent directly to CRED iQ subscribers via email.

Sign up for Daily Distress Alerts

“In today’s market, being among the first to be notified is a critical advantage” noted Michael Haas, Co-Founder and CEO of CRED iQ.  “Our software sends these vital alerts to our subscribers in nearly real-time, while including invaluable data about the loan and the reasons for the potential default.”

CRED iQ reported nearly $4 billion in maturity defaults alone so far this year. Of the 50 largest MSAs tracked by CRED iQ, the overwhelming majority exhibited month-over-month increases from March to April in the percentage of distressed CRE loans.  The distress trend is clearly accelerating.

“Our clients have expressed the critical importance of early notification of distress—both for tactical opportunities as well as the wider context and forecasting advantages” added Chris Aronson, Chief Commercial Officer of CRED iQ.  “We listened carefully, and CRED iQ is now thrilled to deliver this exciting new capability.” 

Daily Distressed Alerts are available to all subscribers as an add-on feature.  It is also included in some of our Enterprise subscriptions.  

About CRED iQ

CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.

Full Data Access to CRED iQ

Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.

If you would like to learn more about CRED iQ’s products and services, please contact team@cred-iq.com or (215) 220-6776. Visit us at cred-iq.com

Distressed Workouts and Payoffs – April 2023

By
CRED iQ
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0

CMBS transactions incurred approximately $94 million in realized losses during April 2023 via the workouts of distressed assets. CRED iQ identified 15 workouts classified as dispositions, liquidations, or discounted payoffs in April 2023. Of the 15 workouts, four were resolved without a principal loss. Of the 11 workouts resulting in losses, severities for the month of April ranged from 1.5% to 71%, based on outstanding balances at disposition. Aggregate realized losses in April 2023 were more than 1.5x higher than March 2023 due, in part, to a higher volume of distressed workouts. The aggregate realized loss total of $94.2 million was lower than the average aggregate monthly CMBS loss total for the trailing 12 months, which was equal to approximately $124 million.

By property type, workouts were concentrated in lodging, accounting for eight of the 15 distressed resolutions in April 2023. Distressed workouts for lodging properties had the second-highest total of aggregate realized losses ($28 million) by property type, which accounted for 30% of the total for the month. The largest distressed workout featuring a lodging property was the discounted payoff of the 241-room Marriott Saddle Brook, a full-service hotel located in northern New Jersey. The hotel secured a $24.3 million mortgage prior to resolution. Similar to many of the other lodging properties with distressed workouts this month, Marriott Saddle Brook transferred to special servicing in 2020 due to pandemic-related operational distress. The discounted payoff resulted in a realized loss of $11 million, equal to a 45% severity.

The largest individual loss and loss severity was associated with the REO liquidation of Park Plaza, a 283,326-SF regional mall located in Little Rock, AR. The property became REO in October 2021 after first transferring to special servicing in June 2019. Outstanding debt at the time of liquidation totaled $73.8 million. Realized losses from the liquidation totaled $52.2 million, equal to a 71% severity. The mall, formerly owned by CBL Properties, was sold out of REO to Second Horizon Capital with plans for revitalization. Park Plaza is anchored by Dillard’s but has had difficulty maintaining occupancy and rents from in-line tenants.

The largest workout by outstanding balance was a $300 million mortgage secured by Bergen Town Center, a 1 million-SF mall located in Paramus, NJ. The loan, which was originated in May 2013, transferred to special servicing in early-March 2023. However, the borrower, Urban Edge Properties, was able to refinance with a $290 million loan provided by New York Life and MetLife Investment Management. This one-month resolution was the quickest of all of April’s workouts.

Excluding defeased loans, there was approximately $3.4 billion in securitized debt among CMBS conduit, and Single-Borrower Large-Loan securitizations that was paid off or liquidated in April 2023, which was approximately a 38% decrease compared to $5.4 billion in March 2023. In April, 16% of the loan resolutions were categorized as dispositions, liquidations, or discounted payoffs. The percentage of distressed workouts was markedly lower in the prior month, equal to 2%. Loan prepayment remained muted in April — approximately 6% of the loans were paid off with prepayment penalties, which was in line with prior months.

Multifamily had the highest total of outstanding debt payoff by property type in April with approximately 38% of the total by balance. Retail had the next highest percentage of outstanding debt payoff with 26% of the total. The $300 million refinancing of Bergen Town Center was among the largest mortgages to pay off in April 2023.

About CRED iQ

CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.

The platform also offers a highly efficient valuation engine which can be leveraged across all property types and geographies. Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.

CRED-iQ-CMBS-April-2023-Distressed-Workouts-and-PayoffsDownload

Commercial Real Estate Market Delinquency Tracker – April 2023

By
CRED iQ
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0

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 (DQ + SS%) include loans that are specially serviced, delinquent, or a combination of both. Distressed rates and month-over-month changes for data reported as of April 2023 are presented below for the 50 largest MSAs, broken out by property type for a granular view of distress by market-sector.

Of the 50 largest MSAs tracked by CRED iQ, the overwhelming majority exhibited month-over-month increases in the percentage of distressed CRE loans. There were 42 markets with increases in CRE distress, equal to 84% of the 50 largest MSAs. The average increase in distress was approximately 80 basis points. Notable markets with the largest increases in distress this month included Minneapolis (+2.5%), Jacksonville (+2.0%), and San Antonio (2.0%). The New Orleans (-1.8%) and Louisville (-1.1%) MSAs were among the few markets that exhibited month-over-month improvements in distressed rates during April 2023.

One of CRED iQ’s initial observations from new data revealed as of April 2023 is that many incumbent markets with the highest distressed rates were also the same markets that exhibited the sharpest month-over-month increases in distress. In other words, the worst performing markets deteriorated at the fastest rates during April 2023. Last month, CRED iQ focused on the Minneapolis MSA, which ranks as the market with the highest overall level of distress among the 50 largest MSAs — equal to 25.2%. This month, a significant increase in distress in the Chicago MSA moved the market into position for the second-highest rate of commercial real estate distress. In April 2023, Chicago exhibited a 1.3% month-over-month increase in the percentage of distressed CMBS loans, which was one of the 10 largest increases among the 50 largest MSAs.

For a more granular analysis of the Top 50 markets, CRED iQ further delineated individual markets’ distressed rates by property type for a comprehensive view by market-sector. The market-sectors with the three highest percentage increases in distress rates during April 2023 were office sectors: Atlanta (+16.5%), San Antonio (+13.2%), and Jacksonville (+6.8%). Office distress in the Atlanta market was driven by a $350 million mortgage secured by a 2.2 million-SF, eight-property suburban office portfolio owned by Adventus Realty Trust. The loan transferred to special servicing in mid-March 2023 — five of the collateral office properties are located in suburban Atlanta. The San Antonio office market was adversely impacted by the Brass Professional Center, which transferred to special servicing on March 13, 2023. The 575,771-SF suburban office property secures a $56.3 million mortgage and was most recently reported as 71% occupied as of September 2022.

Increased distress was also notable across several hotel markets after a $982 million mortgage transferred to special servicing in April 2023 ahead of its June 2023 maturity date. The mortgage is secured by 34 Ashford Hospitality Trust hotels located across multiple markets. Five of those markets, in particular, showed relatively higher increases in distress as a result of the loan’s transfer to special servicing in April 2023: Memphis, Jacksonville, New York City, San Francisco, and Philadelphia. The hotel sector across each of these five markets each ranked in the 10 largest increases in distress among all of the market-sectors tracked by CRED iQ.

The inclusion of Jacksonville-Office and Jacksonville-Hotel highlights a volatile month for the MSA, which had the second-highest increase in the percentage of distress commercial real estate loans in April 2023. The hotel distress was derived from exposure to the aforementioned Ashford Hospital Trust portfolio and additional office distress was caused by a pair of 200,000-SF Duval County office buildings that transferred to special servicing in March 2023 — The Meridian at Deerwood Park and Greystone Park. The Minneapolis MSA has the highest overall distressed rate at 25.2% and distress for the market is at its highest level over the past 18 months. Chicago (10.8%), Birmingham, AL (10.7%), Milwaukee (10.5%), and Cleveland (9.4%) comprise the remaining markets with the highest rates of distress. The Chicago MSA continued its descension in the list of poorest performing markets, entering the Top 5 last month and descending further to the second-lowest ranking in April 2023. The San Jose MSA (0.3%) displaced Salt Lake City as the market with the lowest percentage of distress among the Top 50 MSAs.

View commercial real estate distressed rates broken out by market and property type below:

MSA – Property Type  DQ/SS
(millions) 		DQ/SS
(%)		Monthly
Change
Allentown-Bethlehem-Easton, PA-NJ MSA$77.82.6%0.2%
Allentown – Hotel$1.13.1%-0.2%
Allentown – Industrial$0.00.0%0.0%
Allentown – Multifamily$0.00.0%0.0%
Allentown – Office$57.918.5%0.0%
Allentown – Other$0.00.0%0.0%
Allentown – Retail$18.95.2%0.2%
Allentown – Self Storage$0.00.0%0.0%
Atlanta-Sandy Springs-Marietta, GA MSA$665.92.9%1.2%
Atlanta – Hotel$90.03.6%1.0%
Atlanta – Industrial$0.00.0%0.0%
Atlanta – Multifamily$4.00.0%0.0%
Atlanta – Office$438.820.3%16.5%
Atlanta – Other$0.00.0%0.0%
Atlanta – Retail$133.17.1%-7.4%
Atlanta – Self Storage$0.00.0%0.0%
Austin-Round Rock, TX MSA$126.41.6%0.4%
Austin – Hotel$69.57.9%1.4%
Austin – Industrial$0.00.0%0.0%
Austin – Multifamily$0.00.0%0.0%
Austin – Office$0.00.0%0.0%
Austin – Other$8.31.9%0.9%
Austin – Retail$48.76.4%-0.6%
Austin – Self Storage$0.00.0%0.0%
Baltimore-Towson, MD MSA$394.64.9%1.7%
Baltimore – Hotel$65.414.4%2.1%
Baltimore – Industrial$0.00.0%0.0%
Baltimore – Multifamily$5.20.1%0.0%
Baltimore – Office$65.77.4%-0.1%
Baltimore – Other$11.56.7%1.2%
Baltimore – Retail$246.923.0%7.7%
Baltimore – Self Storage$0.00.0%0.0%
Birmingham-Hoover, AL MSA$300.810.7%0.9%
Birmingham – Hotel$10.37.6%-1.6%
Birmingham – Industrial$0.00.0%0.0%
Birmingham – Multifamily$0.00.0%0.0%
Birmingham – Office$120.523.5%-0.2%
Birmingham – Other$0.00.0%0.0%
Birmingham – Retail$169.923.2%-0.1%
Birmingham – Self Storage$0.00.0%0.0%
Boston-Cambridge-Quincy, MA-NH MSA$161.40.9%-0.2%
Boston – Hotel$19.31.1%-2.2%
Boston – Industrial$0.00.0%0.0%
Boston – Multifamily$0.00.0%0.0%
Boston – Office$50.30.7%0.0%
Boston – Other$0.00.0%-0.1%
Boston – Retail$91.85.1%-1.9%
Boston – Self Storage$0.00.0%0.0%
Bridgeport-Stamford-Norwalk, CT MSA$138.93.6%-0.9%
Bridgeport – Hotel$38.825.8%-0.2%
Bridgeport – Industrial$17.818.6%3.6%
Bridgeport – Multifamily$0.00.0%0.0%
Bridgeport – Office$72.56.1%-4.9%
Bridgeport – Other$9.82.2%-0.4%
Bridgeport – Retail$0.00.0%0.0%
Bridgeport – Self Storage$0.00.0%0.0%
Charlotte-Gastonia-Concord, NC-SC MSA$591.69.3%1.4%
Charlotte – Hotel$39.54.5%-0.8%
Charlotte – Industrial$0.00.0%0.0%
Charlotte – Multifamily$0.00.0%0.0%
Charlotte – Office$353.936.6%0.0%
Charlotte – Other$114.830.5%-5.8%
Charlotte – Retail$83.48.2%-0.5%
Charlotte – Self Storage$0.00.0%0.0%
Chicago-Naperville-Joliet, IL-IN-WI MSA$2,853.010.8%1.3%
Chicago – Hotel$739.641.9%1.3%
Chicago – Industrial$0.00.0%0.0%
Chicago – Multifamily$57.40.8%0.3%
Chicago – Office$1,623.219.5%1.1%
Chicago – Other$205.08.7%0.1%
Chicago – Retail$227.87.3%0.1%
Chicago – Self Storage$0.00.0%0.0%
Cincinnati-Middletown, OH-KY-IN MSA$136.43.8%0.7%
Cincinnati – Hotel$86.531.4%1.2%
Cincinnati – Industrial$0.00.0%0.0%
Cincinnati – Multifamily$0.00.0%0.0%
Cincinnati – Office$0.00.0%0.0%
Cincinnati – Other$6.83.2%0.6%
Cincinnati – Retail$43.27.5%1.4%
Cincinnati – Self Storage$0.00.0%0.0%
Cleveland-Elyria-Mentor, OH MSA$352.79.4%-0.9%
Cleveland – Hotel$84.450.2%3.7%
Cleveland – Industrial$0.00.0%0.0%
Cleveland – Multifamily$0.00.0%0.0%
Cleveland – Office$89.49.9%-8.3%
Cleveland – Other$171.443.7%0.7%
Cleveland – Retail$7.61.1%0.0%
Cleveland – Self Storage$0.00.0%0.0%
Columbus, OH MSA$190.83.4%0.7%
Columbus, OH – Hotel$19.07.0%0.2%
Columbus, OH – Industrial$0.00.0%0.0%
Columbus, OH – Multifamily$0.00.0%0.0%
Columbus, OH – Office$57.38.2%-0.1%
Columbus, OH – Other$0.00.0%0.0%
Columbus, OH – Retail$114.513.1%0.3%
Columbus, OH – Self Storage$0.00.0%0.0%
Dallas-Fort Worth-Arlington, TX MSA$308.01.1%0.3%
Dallas – Hotel$124.13.7%1.7%
Dallas – Industrial$0.00.0%0.0%
Dallas – Multifamily$0.00.0%0.0%
Dallas – Office$139.14.5%-0.2%
Dallas – Other$5.30.3%-0.2%
Dallas – Retail$39.42.2%0.3%
Dallas – Self Storage$0.00.0%0.0%
Denver-Aurora, CO MSA$786.66.3%1.3%
Denver – Hotel$18.72.2%0.0%
Denver – Industrial$0.00.0%0.0%
Denver – Multifamily$0.00.0%0.0%
Denver – Office$687.432.1%1.6%
Denver – Other$34.34.3%-5.6%
Denver – Retail$46.23.2%-0.2%
Denver – Self Storage$0.00.0%0.0%
Detroit-Warren-Livonia, MI MSA$264.02.7%0.0%
Detroit – Hotel$83.812.7%1.0%
Detroit – Industrial$18.82.9%-0.3%
Detroit – Multifamily$1.30.0%0.0%
Detroit – Office$18.20.7%-0.1%
Detroit – Other$0.00.0%-2.7%
Detroit – Retail$142.09.7%0.1%
Detroit – Self Storage$0.00.0%0.0%
Hartford-West Hartford-East Hartford, CT MSA$154.87.3%-0.2%
Hartford – Hotel$4.23.5%-33.5%
Hartford – Industrial$0.00.0%0.0%
Hartford – Multifamily$0.00.0%0.0%
Hartford – Office$24.98.7%0.0%
Hartford – Other$0.00.0%0.0%
Hartford – Retail$125.743.2%4.5%
Hartford – Self Storage$0.00.0%0.0%
Houston-Sugar Land-Baytown, TX MSA$1,268.35.8%1.0%
Houston – Hotel$446.246.4%-1.9%
Houston – Industrial$32.75.3%0.7%
Houston – Multifamily$10.50.1%-0.1%
Houston – Office$642.317.9%1.8%
Houston – Other$117.817.3%6.0%
Houston – Retail$18.90.5%-1.6%
Houston – Self Storage$0.00.0%0.0%
Indianapolis-Carmel, IN MSA$168.53.4%0.8%
Indianapolis – Hotel$92.216.6%1.0%
Indianapolis – Industrial$0.00.0%0.0%
Indianapolis – Multifamily$1.70.1%0.1%
Indianapolis – Office$59.89.4%-0.2%
Indianapolis – Other$0.00.0%0.0%
Indianapolis – Retail$14.83.8%3.2%
Indianapolis – Self Storage$0.00.0%0.0%
Jacksonville, FL MSA$174.54.1%2.0%
Jacksonville – Hotel$24.46.2%6.2%
Jacksonville – Industrial$0.00.0%0.0%
Jacksonville – Multifamily$0.00.0%0.0%
Jacksonville – Office$38.26.8%6.8%
Jacksonville – Other$0.00.0%0.0%
Jacksonville – Retail$111.925.4%-3.5%
Jacksonville – Self Storage$0.00.0%0.0%
Kansas City, MO-KS MSA$99.92.1%0.3%
Kansas City – Hotel$29.312.4%0.0%
Kansas City – Industrial$0.00.0%0.0%
Kansas City – Multifamily$2.50.1%0.0%
Kansas City – Office$0.00.0%0.0%
Kansas City – Other$20.911.5%1.0%
Kansas City – Retail$47.38.5%0.0%
Kansas City – Self Storage$0.00.0%0.0%
Las Vegas-Paradise, NV MSA$565.92.7%0.2%
Las Vegas – Hotel$18.30.2%0.2%
Las Vegas – Industrial$0.00.0%0.0%
Las Vegas – Multifamily$0.00.0%0.0%
Las Vegas – Office$0.00.0%0.0%
Las Vegas – Other$325.039.3%-1.0%
Las Vegas – Retail$222.65.8%-1.1%
Las Vegas – Self Storage$0.00.0%0.0%
Los Angeles-Long Beach-Santa Ana, CA MSA$2,109.74.2%1.1%
Los Angeles – Hotel$162.03.2%1.7%
Los Angeles – Industrial$0.00.0%0.0%
Los Angeles – Multifamily$5.20.0%0.0%
Los Angeles – Office$780.35.9%2.3%
Los Angeles – Other$131.53.9%0.5%
Los Angeles – Retail$1,023.215.6%0.0%
Los Angeles – Self Storage$7.60.9%0.0%
Louisville/Jefferson County, KY-IN MSA$30.31.1%-1.1%
Louisville – Hotel$0.00.0%0.0%
Louisville – Industrial$0.00.0%0.0%
Louisville – Multifamily$0.00.0%0.0%
Louisville – Office$0.00.0%0.0%
Louisville – Other$0.00.0%0.0%
Louisville – Retail$30.36.1%-7.7%
Louisville – Self Storage$0.00.0%0.0%
Memphis, TN-AR-MS MSA$80.33.8%0.6%
Memphis – Hotel$28.312.8%6.8%
Memphis – Industrial$0.00.0%0.0%
Memphis – Multifamily$0.00.0%0.0%
Memphis – Office$0.00.0%0.0%
Memphis – Other$5.318.0%3.3%
Memphis – Retail$46.812.3%-4.1%
Memphis – Self Storage$0.00.0%0.0%
Miami-Fort Lauderdale-Pompano Beach, FL MSA$322.21.3%0.3%
Miami – Hotel$70.51.3%0.6%
Miami – Industrial$0.00.0%0.0%
Miami – Multifamily$1.40.0%0.0%
Miami – Office$4.10.1%0.0%
Miami – Other$0.00.0%0.0%
Miami – Retail$246.24.5%0.8%
Miami – Self Storage$0.00.0%0.0%
Milwaukee-Waukesha-West Allis, WI MSA$221.810.5%1.6%
Milwaukee – Hotel$16.510.8%0.5%
Milwaukee – Industrial$0.00.0%0.0%
Milwaukee – Multifamily$0.00.0%0.0%
Milwaukee – Office$99.916.6%-1.1%
Milwaukee – Other$0.00.0%0.0%
Milwaukee – Retail$105.423.7%0.6%
Milwaukee – Self Storage$0.00.0%0.0%
Minneapolis-St. Paul-Bloomington, MN-WI MSA$1,919.325.2%2.5%
Minneapolis – Hotel$265.143.8%-0.7%
Minneapolis – Industrial$0.00.0%0.0%
Minneapolis – Multifamily$8.00.4%0.4%
Minneapolis – Office$87.94.2%-0.2%
Minneapolis – Other$158.233.0%1.2%
Minneapolis – Retail$1,400.073.7%-0.4%
Minneapolis – Self Storage$0.00.0%0.0%
Nashville-Davidson-Murfreesboro-Franklin, TN MSA$64.61.3%0.2%
Nashville – Hotel$51.53.5%0.1%
Nashville – Industrial$0.00.0%0.0%
Nashville – Multifamily$0.00.0%0.0%
Nashville – Office$0.00.0%0.0%
Nashville – Other$0.00.0%0.0%
Nashville – Retail$13.01.7%0.0%
Nashville – Self Storage$0.00.0%0.0%
New Orleans-Metairie-Kenner, LA MSA$58.51.6%-1.8%
New Orleans – Hotel$0.00.0%-5.2%
New Orleans – Industrial$0.00.0%0.0%
New Orleans – Multifamily$11.31.4%0.5%
New Orleans – Office$27.04.9%-0.1%
New Orleans – Other$14.79.7%0.2%
New Orleans – Retail$5.60.7%-1.1%
New Orleans – Self Storage$0.00.0%0.0%
New York-Northern New Jersey-Long Island, NY-NJ-PA MSA$7,619.06.1%0.8%
New York City – Hotel$1,001.824.4%4.2%
New York City – Industrial$120.22.8%-0.2%
New York City – Multifamily$951.13.3%1.2%
New York City – Office$1,324.82.8%-0.1%
New York City – Other$1,786.57.5%0.7%
New York City – Retail$2,434.619.2%1.1%
New York City – Self Storage$0.00.0%0.0%
Orlando-Kissimmee, FL MSA$102.21.2%0.1%
Orlando – Hotel$13.50.5%-0.3%
Orlando – Industrial$0.00.0%0.0%
Orlando – Multifamily$0.00.0%0.0%
Orlando – Office$60.411.1%-2.2%
Orlando – Other$0.00.0%0.0%
Orlando – Retail$28.33.1%-0.1%
Orlando – Self Storage$0.00.0%0.0%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD MSA$1,122.35.9%1.7%
Philadelphia – Hotel$159.317.6%3.2%
Philadelphia – Industrial$10.30.3%0.0%
Philadelphia – Multifamily$107.41.5%1.1%
Philadelphia – Office$424.610.8%3.1%
Philadelphia – Other$389.029.5%-1.5%
Philadelphia – Retail$31.81.5%0.6%
Philadelphia – Self Storage$0.00.0%0.0%
Phoenix-Mesa-Scottsdale, AZ MSA$253.61.5%0.3%
Phoenix – Hotel$63.03.7%1.8%
Phoenix – Industrial$0.00.0%0.0%
Phoenix – Multifamily$0.00.0%0.0%
Phoenix – Office$48.12.1%-0.3%
Phoenix – Other$8.50.9%0.0%
Phoenix – Retail$133.97.9%1.4%
Phoenix – Self Storage$0.00.0%0.0%
Pittsburgh, PA MSA$248.36.2%1.1%
Pittsburgh – Hotel$29.915.3%2.6%
Pittsburgh – Industrial$0.00.0%0.0%
Pittsburgh – Multifamily$1.50.1%0.1%
Pittsburgh – Office$103.99.8%0.6%
Pittsburgh – Other$105.230.0%0.0%
Pittsburgh – Retail$7.81.5%0.1%
Pittsburgh – Self Storage$0.00.0%0.0%
Portland-Vancouver-Beaverton, OR-WA MSA$315.64.3%0.2%
Portland – Hotel$295.933.5%0.2%
Portland – Industrial$0.00.0%0.0%
Portland – Multifamily$0.00.0%-0.9%
Portland – Office$19.74.3%-0.7%
Portland – Other$0.00.0%0.0%
Portland – Retail$0.00.0%0.0%
Portland – Self Storage$0.00.0%0.0%
Raleigh-Cary, NC MSA$32.41.0%0.1%
Raleigh – Hotel$15.36.4%0.1%
Raleigh – Industrial$0.00.0%0.0%
Raleigh – Multifamily$0.00.0%0.0%
Raleigh – Office$0.00.0%0.0%
Raleigh – Other$6.62.9%-0.7%
Raleigh – Retail$10.63.8%-0.1%
Raleigh – Self Storage$0.00.0%0.0%
Richmond, VA MSA$157.25.8%1.1%
Richmond – Hotel$0.00.0%0.0%
Richmond – Industrial$0.00.0%0.0%
Richmond – Multifamily$0.00.0%0.0%
Richmond – Office$0.00.0%0.0%
Richmond – Other$12.88.8%0.0%
Richmond – Retail$144.430.3%-0.6%
Richmond – Self Storage$0.00.0%0.0%
Riverside-San Bernardino-Ontario, CA MSA$295.12.8%-0.1%
Riverside – Hotel$44.18.9%-2.6%
Riverside – Industrial$0.00.0%0.0%
Riverside – Multifamily$1.40.1%0.1%
Riverside – Office$0.00.0%0.0%
Riverside – Other$0.00.0%0.0%
Riverside – Retail$249.611.8%-0.6%
Riverside – Self Storage$0.00.0%0.0%
Sacramento-Arden-Arcade-Roseville, CA MSA$16.90.4%0.1%
Sacramento – Hotel$0.00.0%0.0%
Sacramento – Industrial$0.00.0%0.0%
Sacramento – Multifamily$0.00.0%0.0%
Sacramento – Office$6.10.8%0.0%
Sacramento – Other$10.93.7%0.8%
Sacramento – Retail$0.00.0%0.0%
Sacramento – Self Storage$0.00.0%0.0%
Salt Lake City, UT MSA$12.70.3%0.1%
Salt Lake City – Hotel$6.12.1%0.2%
Salt Lake City – Industrial$0.00.0%0.0%
Salt Lake City – Multifamily$0.00.0%0.0%
Salt Lake City – Office$0.00.0%0.0%
Salt Lake City – Other$0.00.0%0.0%
Salt Lake City – Retail$6.61.0%0.5%
Salt Lake City – Self Storage$0.00.0%0.0%
San Antonio, TX MSA$188.34.0%2.0%
San Antonio – Hotel$17.48.8%1.9%
San Antonio – Industrial$0.00.0%0.0%
San Antonio – Multifamily$0.00.0%0.0%
San Antonio – Office$56.313.2%13.2%
San Antonio – Other$0.00.0%0.0%
San Antonio – Retail$114.615.3%0.5%
San Antonio – Self Storage$0.00.0%0.0%
San Diego-Carlsbad-San Marcos, CA MSA$63.60.7%0.3%
San Diego – Hotel$56.63.4%1.4%
San Diego – Industrial$0.00.0%0.0%
San Diego – Multifamily$4.10.1%0.0%
San Diego – Office$0.00.0%0.0%
San Diego – Other$0.00.0%0.0%
San Diego – Retail$2.90.2%0.0%
San Diego – Self Storage$0.00.0%0.0%
San Francisco-Oakland-Fremont, CA MSA$1,269.74.9%1.7%
San Francisco – Hotel$209.47.0%3.6%
San Francisco – Industrial$0.00.0%0.0%
San Francisco – Multifamily$447.66.9%1.3%
San Francisco – Office$437.84.1%2.1%
San Francisco – Other$128.64.0%2.6%
San Francisco – Retail$46.44.1%-0.3%
San Francisco – Self Storage$0.00.0%0.0%
San Jose-Sunnyvale-Santa Clara, CA MSA$58.30.3%0.0%
San Jose – Hotel$35.20.5%0.0%
San Jose – Industrial$0.00.0%0.0%
San Jose – Multifamily$0.00.0%0.0%
San Jose – Office$23.10.3%0.0%
San Jose – Other$0.00.0%0.0%
San Jose – Retail$0.00.0%0.0%
San Jose – Self Storage$0.00.0%0.0%
Seattle-Tacoma-Bellevue, WA MSA$83.60.4%0.1%
Seattle – Hotel$61.24.3%0.0%
Seattle – Industrial$0.00.0%0.0%
Seattle – Multifamily$0.00.0%0.0%
Seattle – Office$0.00.0%0.0%
Seattle – Other$22.41.5%1.5%
Seattle – Retail$0.00.0%0.0%
Seattle – Self Storage$0.00.0%0.0%
St. Louis, MO-IL MSA$208.35.2%0.4%
St. Louis – Hotel$1.70.5%0.0%
St. Louis – Industrial$0.00.0%0.0%
St. Louis – Multifamily$3.20.2%0.1%
St. Louis – Office$0.00.0%0.0%
St. Louis – Other$14.02.4%-0.4%
St. Louis – Retail$189.419.3%-0.5%
St. Louis – Self Storage$0.00.0%0.0%
Tampa-St. Petersburg-Clearwater, FL$112.11.2%0.1%
Tampa – Hotel$62.99.3%1.1%
Tampa – Industrial$0.00.0%0.0%
Tampa – Multifamily$1.20.0%0.0%
Tampa – Office$19.62.6%0.0%
Tampa – Other$0.00.0%0.0%
Tampa – Retail$28.43.9%-1.1%
Tampa – Self Storage$0.00.0%0.0%
Tucson, AZ MSA$156.55.2%0.7%
Tucson – Hotel$0.00.0%0.0%
Tucson – Industrial$0.00.0%0.0%
Tucson – Multifamily$0.00.0%0.0%
Tucson – Office$0.00.0%0.0%
Tucson – Other$0.00.0%0.0%
Tucson – Retail$156.519.8%0.9%
Tucson – Self Storage$0.00.0%0.0%
Virginia Beach-Norfolk-Newport News, VA-NC MSA$182.84.6%0.7%
Virginia Beach – Hotel$14.83.4%-1.5%
Virginia Beach – Industrial$0.00.0%0.0%
Virginia Beach – Multifamily$0.00.0%0.0%
Virginia Beach – Office$0.00.0%0.0%
Virginia Beach – Other$4.43.0%-0.4%
Virginia Beach – Retail$163.618.3%-0.8%
Virginia Beach – Self Storage$0.00.0%0.0%
Washington-Arlington-Alexandria, DC-VA-MD-WV MSA$1,003.93.5%0.9%
Washington, DC – Hotel$41.83.8%0.9%
Washington, DC – Industrial$0.00.0%0.0%
Washington, DC – Multifamily$0.00.0%0.0%
Washington, DC – Office$789.010.0%1.5%
Washington, DC – Other$38.62.8%0.1%
Washington, DC – Retail$134.33.8%-0.1%
Washington, DC – Self Storage$0.00.0%0.0%
Grand Total$28,090.04.3%0.8%

About CRED iQ

CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.

The platform also offers a highly efficient valuation engine which can be leveraged across all property types and geographies. Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.

CRED-iQ-Market-Delinquency-Tracker-April-2023Download

April 2023 Delinquency Report

By
CRED iQ
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0
DQ = All delinquent CMBS loans in the conduit and SASB universe, including specially serviced and non-specially serviced loans
SS = All specially serviced CMBS loans in the conduit and SASB universe, including current, delinquent and REO
DQ + SS = All distressed CMBS loans in the conduit and SASB universe that are delinquent, specially serviced, or a combination of both

The CRED iQ delinquency rate for CMBS for the month of April 2023 increased for the third consecutive month to 3.93%. The delinquency rate was 16 basis points higher than the prior month’s rate of 3.77%. Increased distress in commercial real estate has deservedly dominated the March and April news cycles and underlying data compiled by CRED iQ for April 2023 underpinned continued commentary on industry distress. The delinquency rate is equal to the percentage of all delinquent specially serviced loans and delinquent non-specially serviced loans, for CRED iQ’s sample universe of $600+ billion in CMBS conduit and single asset single-borrower (SASB) loans. CRED iQ’s special servicing rate, equal to the percentage of CMBS loans that are with the special servicer (delinquent and non-delinquent), declined month-over-month to 5.39% from 5.53%. This month’s decline in the special servicing rate indicated that workout activity was present and ongoing in the wake of additional delinquencies. Aggregating the two indicators of distress – delinquency rate and special servicing rate – into an overall distressed rate (DQ + SS%) equals 6.08% of CMBS loans that are specially serviced, delinquent, or a combination of both. The increase in delinquent loans outweighed a relatively smaller decline in special servicing for a net increase in the overall CMBS distressed rate, which compares to the prior month’s distressed rate of 5.73%. Distressed rates generally track slightly higher than special servicing rates as most delinquent loans are also with the special servicer.

DQ = All delinquent CMBS loans in the conduit and SASB universe, including specially serviced and non-specially serviced loans
SS = All specially serviced CMBS loans in the conduit and SASB universe, including current, delinquent and REO
DQ + SS = All distressed CMBS loans in the conduit and SASB universe that are delinquent, specially serviced, or a combination of both

Headwinds intensified for the office sector in April 2023 after additional delinquencies were the source of a month-over-month surge in the percentage of delinquent office loans. The delinquency rate for loans secured by office properties increased to 3.81%, which was 72 basis points higher than March and represented a 23% month-over-month increase. The office delinquency rate has increased for five consecutive months and is more than 2x higher than a year prior. Drivers behind April’s rise in office delinquencies included a $240 million mortgage secured by 600 California Street, a 359,883-SF office tower in San Francisco, CA. The loan was recently reported as 30 days delinquent and also transferred to special servicing in late-March 2023. The embattled coworking firm WeWork is a primary tenant at the property, leasing 52% of the NRA, and is also a general partner in the ownership structure of the building.

The consistent rise in office delinquency is concurrent with a recovery in lodging delinquency, drawing the delinquency rates for both property types closer together. The lodging delinquency rate as of April 2023 was 4.21%, a decline compared to March 2023’s rate of 4.58%. As a point of reference, the delinquency rate for lodging in 2020 during the onset of the pandemic was north of 20% — a substantial recovery for the lodging industry. April’s delinquency decline for lodging narrows the gap between office delinquency (3.81%) and lodging delinquency (4.21%) to just 40 basis points.

The delinquency rate for retail (7.55%) exhibited a month-over-month decline while the CMBS multifamily delinquency rate (3.25%) increased for the second consecutive month. Delinquency rates for industrial (0.33%) and self-storage (0.05%) were relatively unchanged compared to the prior month.

Shifting focus to special servicing rates, CRED iQ observed increases for the office, lodging, and multifamily sectors. Only the special servicing rate for retail properties (11.04%) exhibited a month-over-month decline. Office again took the spotlight as the property type with the highest percentage change in special servicing, increasing from 4.97% as of March 2023 to 5.57% as of April 2203 – equal to a 12% change. Central business district submarkets were responsible for an oversized segment of newly transferred office loans. Examples included an $84.5 million mortgage secured by The Wanamaker Building in Philadelphia, PA and a $56.5 million loan secured by a 190,385-SF office building located at 1201 Connecticut Avenue NW in Washington, DC. Both properties are encumbered by floating-rate debt, factoring into the loans’ credit concerns. CRED iQ first noted lease expiration concerns for The Wanamaker Building’s primary tenants back in April 2022.

Loans secured from suburban office properties were not immune from adverse headwinds either. A $350 million mortgage secured by a 2.2 million-SF, eight-property suburban office portfolio owned by Adventus Realty Trust, with properties located in Illinois and Georgia, transferred to special servicing in Mid-March 2023. Additionally in mid-March 2023, a $161.4 million mortgage secured by nine Brookfield office properties, primarily located in suburban Washington, DC transferred to special servicing.

Aside from the office sector, the special servicing rate for lodging came in at 6.35%, a modest increase compared to March 2023. Multifamily (4.02%) also exhibited an increase in its special servicing rate. The special servicing rate for industrial properties remained relatively unchanged while self-storage did not have any specially serviced inventory.

CRED iQ’s CMBS distressed rate (DQ + SS%) by property type accounts for loans that qualify for either delinquent or special servicing subsets. This month, the overall distressed rate for CMBS increased to 6.08%. The increase was 35 basis points higher than March’s distressed rate (5.73%), equal to a 6% increase. CRED iQ’s overall distressed rate is at its highest level since March 2022.

DQ + SS = All distressed CMBS loans in the conduit and SASB universe that are delinquent, specially serviced, or a combination of both

For additional information about two of this month’s largest loans that transferred to special servicing, click View Details below:

[View Details][View Details]
Loan600 California StreetThe Wanamaker Building
Balance$240 million$84.5 million
Special Servicer Transfer Date3/24/20233/27/2023

About CRED iQ

CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.

The platform also offers a highly efficient valuation engine which can be leveraged across all property types and geographies. Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.

CRED-iQ-April-2023-Delinquency-ReportDownload

Mounting Commercial Real Estate Maturity Defaults

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CRED iQ
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The oft-publicized wall of maturities is at the forefront of concerns for the commercial real estate industry. In December 2022, CRED iQ highlighted $162 billion in securitized commercial real estate debt that was scheduled to mature in 2023 with its CRE Maturity Outlook at the beginning of the year. So far in the CMBS universe from January 2023 through March 2023, there has been more than $3.7 billion in new maturity defaults with loans failing to pay off on a timely basis. Further, the aggregate amount of CMBS debt in maturity default has increased by approximately 28% over the past 12 months. To provide further context and visualization into maturity risk and trends, CRED iQ completed a more granular analysis of CMBS loans in maturity default. Maturity defaults for our analysis are defined by loans whose maturity dates have passed without being paid off and continued monthly debt service is not being paid by the borrowers. Loans whose maturity dates have passed and borrowers continued remitting monthly debt servicer were excluded as well as certain floating-rate loans that were in the process of finalizing optional maturity extensions.

The first compilation of data is a trailing 12-month view of total CMBS maturity defaults. Although the CMBS universe is only of portion of the entire commercial real estate debt universe, the data can offer insight with a partial view of the wider population. Starting in April 2022, total CMBS maturity defaults totaled approximately $6.6 million. The aggregate total declined below $4 billion in July 2022 and then consistently and successively increased through March 2023 when the aggregate total of maturity defaults was equal to approximately $8.4 billion. Unsurprisingly, the rise in maturity defaults was concurrent  with rising interest rates; though the inability to refinance debt was causally linked to idiosyncratic credit factors as well as macro trends.

A second compilation of data parsed out new CMBS maturity defaults by month. New maturity defaults are defined as loans that entered maturity default in a given month that were not in maturity default during the prior month. Monthly totals of new additions give a view of the velocity of maturity defaults over a trailing 12-month period and exhibits, on a net basis, that more debt is entering maturity default than is getting worked out of maturity default. Aside from an outlying month in August 2022, the amount of new CMBS debt entering maturity default increased in consecutive months from May 2022 through January 2023. January 2023 had the highest aggregate total of new maturity defaults over the past year with approximately $1.7 billion. New maturity defaults were significantly lower in February 2023 ($776.5 million) but increased again in March 2023 ($1.2 billion). New CMBS maturity defaults by month were overlayed with aggregate running totals to provide visual context for the increase in maturity defaults over the past year.

From our observations, in line with headline risk, loans secured by office properties are the primary driver behind the increase in maturity defaults over the past 12 months. Of the $1.2 billion in outstanding CMBS debt that entered maturity default during March 2023, approximately 69% was attributed to office properties. Loans secured by retail contributed to 22% of new maturity default additions by outstanding balance. The office property type anchors conversations surrounding commercial real estate credit risk with the sector facing continuously adverse headwinds. CMBS maturity defaults attributed to office properties totaled $925 million as of April 2022, but the aggregate total of office maturity defaults has increased to approximately $1.8 billion as of March 2023 — equal to a 90% increase.

Though there has been a run up in maturity defaults by office loans, the property type historically has not accounted for the majority of outstanding CMBS debt that has been in maturity default. Over the past 12 months, loans secured by retail properties has accounted for between 42% and 58% of aggregate maturity defaults in a given month. Hotel properties generally accounted for the second-highest total, ranging from 17% to 35% of total CMBS debt in maturity default. Office loans have not accounted for more than 16% of maturity defaults in any given month between April 2022 and February 2023; however, the total increased to 21% in March 2023 with the most recent surge of office maturity defaults, surpassing the total for hotel loans.

The composition of property types among loans in maturity default will certainly change over time; however, we expect a temporary credit crunch to facilitate additional maturity defaults over the near term. Relatively recently, a $982 million mortgage secured by 34 Ashford Hospitality Trust hotels transferred to special servicing due to maturity default ahead of the loan’s June 2023 maturity date. Without a high volume of workout activity, maturity defaults may continue to mount higher.

About CRED iQ

CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.

The platform also offers a highly efficient valuation engine which can be leveraged across all property types and geographies. Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.

CRED-iQ-Mounting-Maturity-Defaults-2Download

Distressed Workouts and Payoffs – March 2023

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CRED iQ
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0

CMBS transactions incurred approximately $36.7 million in realized losses during March 2023 via the workout of distressed assets. CRED iQ identified 10 workouts classified as dispositions, liquidations, or discounted payoffs in March 2023. Of the 10 workouts, only one was resolved without a loss. Of the nine workouts resulting in losses, severities for the month of March ranged from 2% to 95%, based on outstanding balances at disposition. Aggregate realized losses in March 2023 were approximately 72% lower than February 2023 due to the lower quantity of distressed workouts. The aggregate realized loss total of $36.7 million was the lowest level of realized losses for any month over the past year. On a monthly basis, realized losses for CMBS transactions averaged approximately $124 million during the trailing 12 months.

By property type, workouts were concentrated in lodging, accounting for half of the distressed resolutions in March 2023. Distressed workouts for lodging properties had the highest total of aggregate realized losses ($25.6 million), which accounted for 70% of the total for the month. The largest distressed workout featuring a lodging property was the REO liquidation of the Crowne Plaza Houston Katy Freeway, a 207-key full-service hotel located in Houston, TX. The hotel transferred to special servicing in May 2020 due to COVID-related distress and became REO in June 2021. The property had outstanding debt of $28.3 million and the liquidation resulted in a loss of $24.2 million, equal to a severity of 86%. The liquidation was also the largest workout in March by outstanding debt balance.

The largest loss severity among distressed workouts in March was from the REO liquidation of IUP Pratt Studios, a 139-unit student housing property designated for students enrolled at Indiana University of Pennsylvania. Prior to liquidation, the property had been in special servicing since July 2020. The student housing complex had outstanding debt of $4 million prior to its liquidation. The REO sale of the property resulted in a 95% loss severity on outstanding debt.

Excluding defeased loans, there was approximately $5.4 billion in securitized debt among CMBS conduit, Single-Borrower Large-Loan, and Freddie Mac securitizations that was paid off or liquidated in March 2023, which was approximately a 54% increase compared to $3.5 billion in February 2023. In March, 2% of the loan resolutions were categorized as dispositions, liquidations, or discounted payoffs. The percentage of distressed workouts was 8% in the prior month. Approximately 5% of the loans were paid off with prepayment penalties, which was significantly less than in prior months. Loan prepayment has declined significantly in recent months given the relatively high interest rate environment.

Further excluding Freddie Mac securitizations, lodging had the highest total of outstanding debt payoff in March with approximately 36% of the total by balance. Multifamily had the next highest percentage of outstanding debt payoff with 27% of the total. Among the largest mortgages to pay off was a $560 million loan secured by 59 La Quinta Inn select-service hotels. A total of 109 hotels were encumbered by the mortgage, which had a balance north of $1 billion at origination.

About CRED iQ

CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.

The platform also offers a highly efficient valuation engine which can be leveraged across all property types and geographies. Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.

CRED-iQ-CMBS-March-2023-Distressed-Workouts-and-PayoffsDownload

Commercial Real Estate Market Delinquency Tracker – March 2023

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CRED iQ
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0

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 (DQ + SS%) include loans that are specially serviced, delinquent, or a combination of both. Distressed rates and month-over-month changes for data reported as of March 2023 are presented below for the 50 largest MSAs, broken out by property type for a granular view of distress by market-sector.

Of the 50 largest MSAs tracked by CRED iQ, there were 28 markets that exhibited month-over-month decreases in the percentage of distressed CRE loans with an average individual market decline of 24 basis points compared to February 2023. Of the 22 MSAs exhibiting month-over-month increases in distressed rates, the average increase by market was 60 basis points. Notable markets with the largest improvements in the levels of distress this month included Birmingham, AL (-1.6%) and Pittsburgh (-1.2%). The San Francisco (+2.2%), Minneapolis (+2.0%), Chicago (+1.9%) MSAs were among the markets that exhibited the sharpest percentage increases in distressed commercial real estate loans during March 2023.

The Minneapolis MSA, with the second-highest increase in CRE distress during March 2023, notably ranked as the worst performing MSA among markets tracked by CRED iQ and has held that position since December 2022. Nearly 23% of commercial real estate loans in CRED iQ’s database that are secured by properties located in the Minneapolis MSA are delinquent or specially serviced. The outlying distressed rate for Minneapolis was reinforced this month by an impending maturity default of a loan secured by a 57-story downtown office tower with a significant retail component. In late-February 2023, a $154.4 million mortgage secured by the IDS Center transferred to special servicing due to an anticipated maturity default ahead of the loan’s May 2023 maturity date. The IDS Center is a 1.4 million-SF mixed-use property located in the Minneapolis Central Business District that consists primarily of office space with a sizeable retail component. Occupancy of the property has averaged approximately 75% for the past three years.

For additional granular analysis of the Top 50 markets, CRED iQ further delineated individual markets’ distressed rates by property type for a comprehensive view by market-sector. Increased distress in the mixed-use property type across major markets was a primary theme for March 2023. Three of the 10 highest increases in distress by market-sector across all property types and markets were mixed-use markets: Las Vegas – Mixed Use (+40.3%), Minneapolis – Mixed Use (+30.9%), and Detroit – Mixed Use (+2.7%). The Las Vegas – Mixed Use market-sector was impacted by a $325 million mortgage secured by fee and leasehold interests in the Hughes Center, a 20-property 1.5 million-SF office/retail campus located just off The Strip. The loan transferred to special servicing in March 2023. Occupancy at the Hughes Center was approximately 71% as of year-end 2022.

Aside from the Minneapolis MSA highlighted earlier, the following markets had the highest overall rates of distress among the Top 50 markets tracked by CRED iQ: Cleveland (10.2%), Birmingham (9.9%), Chicago (9.5%), and Milwaukee (8.9%). Compared to the prior month, Chicago displaced Charlotte in the list of Top 5 markets with the highest commercial real estate distress. The Salt Lake City market (0.2%) had the lowest percentage of distress among the Top 50 MSAs for the second consecutive month.

View commercial real estate distressed rates broken out by market and property type below:

MSA – Property Type  DQ/SS
(millions) 		DS/SS
(%)		Monthly
Change
Allentown-Bethlehem-Easton, PA-NJ MSA$78.02.4%0.0%
Allentown – Hotel$1.23.3%-0.9%
Allentown – Industrial$0.00.0%0.0%
Allentown – Multifamily$0.00.0%0.0%
Allentown – Office$58.018.5%0.3%
Allentown – Other$0.00.0%0.0%
Allentown – Retail$18.95.1%0.0%
Allentown – Self Storage$0.00.0%0.0%
Atlanta-Sandy Springs-Marietta, GA MSA$454.41.6%-0.3%
Atlanta – Hotel$67.42.7%-0.6%
Atlanta – Industrial$0.00.0%0.0%
Atlanta – Multifamily$0.00.0%0.0%
Atlanta – Office$83.63.9%0.4%
Atlanta – Other$0.00.0%0.0%
Atlanta – Retail$303.414.5%-2.9%
Atlanta – Self Storage$0.00.0%0.0%
Austin-Round Rock, TX MSA$117.11.2%0.1%
Austin – Hotel$57.96.5%0.8%
Austin – Industrial$0.00.0%0.0%
Austin – Multifamily$0.00.0%0.0%
Austin – Office$0.00.0%0.0%
Austin – Other$4.11.0%-0.4%
Austin – Retail$55.16.9%0.5%
Austin – Self Storage$0.00.0%0.0%
Baltimore-Towson, MD MSA$307.63.2%-0.5%
Baltimore – Hotel$58.512.2%3.1%
Baltimore – Industrial$0.00.0%0.0%
Baltimore – Multifamily$3.80.1%0.0%
Baltimore – Office$65.97.4%2.1%
Baltimore – Other$11.55.5%-0.6%
Baltimore – Retail$168.015.4%-7.3%
Baltimore – Self Storage$0.00.0%0.0%
Birmingham-Hoover, AL MSA$301.09.8%-1.6%
Birmingham – Hotel$10.39.2%0.0%
Birmingham – Industrial$0.00.0%0.0%
Birmingham – Multifamily$0.00.0%-4.5%
Birmingham – Office$120.823.6%0.1%
Birmingham – Other$0.00.0%0.0%
Birmingham – Retail$169.923.3%0.3%
Birmingham – Self Storage$0.00.0%0.0%
Boston-Cambridge-Quincy, MA-NH MSA$199.41.0%0.4%
Boston – Hotel$56.33.3%2.1%
Boston – Industrial$0.00.0%0.0%
Boston – Multifamily$0.00.0%0.0%
Boston – Office$50.30.7%0.5%
Boston – Other$4.00.1%0.1%
Boston – Retail$88.87.0%2.0%
Boston – Self Storage$0.00.0%0.0%
Bridgeport-Stamford-Norwalk, CT MSA$199.54.5%-0.3%
Bridgeport – Hotel$38.926.1%-0.2%
Bridgeport – Industrial$17.815.0%0.0%
Bridgeport – Multifamily$0.00.0%0.0%
Bridgeport – Office$133.011.0%0.0%
Bridgeport – Other$9.82.6%-0.7%
Bridgeport – Retail$0.00.0%0.0%
Bridgeport – Self Storage$0.00.0%0.0%
Charlotte-Gastonia-Concord, NC-SC MSA$599.87.8%0.0%
Charlotte – Hotel$47.35.3%0.0%
Charlotte – Industrial$0.00.0%0.0%
Charlotte – Multifamily$0.00.0%0.0%
Charlotte – Office$354.236.7%-1.8%
Charlotte – Other$114.836.3%0.0%
Charlotte – Retail$83.48.7%-0.3%
Charlotte – Self Storage$0.00.0%0.0%
Chicago-Naperville-Joliet, IL-IN-WI MSA$2,798.19.5%1.9%
Chicago – Hotel$739.340.6%8.6%
Chicago – Industrial$0.00.0%0.0%
Chicago – Multifamily$54.40.6%-0.1%
Chicago – Office$1,562.918.4%5.8%
Chicago – Other$208.28.6%0.4%
Chicago – Retail$233.27.2%0.3%
Chicago – Self Storage$0.00.0%0.0%
Cincinnati-Middletown, OH-KY-IN MSA$126.93.1%-0.4%
Cincinnati – Hotel$86.930.2%0.0%
Cincinnati – Industrial$0.00.0%0.0%
Cincinnati – Multifamily$0.00.0%0.0%
Cincinnati – Office$0.00.0%0.0%
Cincinnati – Other$6.82.6%0.0%
Cincinnati – Retail$33.36.1%-1.9%
Cincinnati – Self Storage$0.00.0%0.0%
Cleveland-Elyria-Mentor, OH MSA$428.410.2%1.8%
Cleveland – Hotel$84.546.5%0.0%
Cleveland – Industrial$0.00.0%0.0%
Cleveland – Multifamily$0.00.0%0.0%
Cleveland – Office$164.518.2%8.1%
Cleveland – Other$171.743.0%0.0%
Cleveland – Retail$7.61.1%0.0%
Cleveland – Self Storage$0.00.0%0.0%
Columbus, OH MSA$184.52.7%0.0%
Columbus, OH – Hotel$19.76.8%-0.4%
Columbus, OH – Industrial$0.00.0%0.0%
Columbus, OH – Multifamily$0.00.0%0.0%
Columbus, OH – Office$57.48.3%-0.8%
Columbus, OH – Other$0.00.0%0.0%
Columbus, OH – Retail$107.412.8%-0.1%
Columbus, OH – Self Storage$0.00.0%0.0%
Dallas-Fort Worth-Arlington, TX MSA$264.30.7%0.1%
Dallas – Hotel$68.72.0%0.0%
Dallas – Industrial$0.00.0%-0.2%
Dallas – Multifamily$8.50.0%0.0%
Dallas – Office$139.34.7%0.9%
Dallas – Other$10.20.5%0.2%
Dallas – Retail$37.61.8%0.6%
Dallas – Self Storage$0.00.0%0.0%
Denver-Aurora, CO MSA$811.75.0%-0.4%
Denver – Hotel$18.82.1%-0.4%
Denver – Industrial$0.00.0%0.0%
Denver – Multifamily$0.00.0%0.0%
Denver – Office$652.730.6%-2.4%
Denver – Other$94.09.9%0.0%
Denver – Retail$46.23.5%0.0%
Denver – Self Storage$0.00.0%0.0%
Detroit-Warren-Livonia, MI MSA$291.62.7%0.2%
Detroit – Hotel$83.911.8%0.1%
Detroit – Industrial$19.73.2%-0.1%
Detroit – Multifamily$3.20.1%0.1%
Detroit – Office$20.30.8%0.0%
Detroit – Other$22.52.7%2.7%
Detroit – Retail$142.29.6%-0.2%
Detroit – Self Storage$0.00.0%0.0%
Hartford-West Hartford-East Hartford, CT MSA$193.97.5%0.0%
Hartford – Hotel$43.037.0%-0.7%
Hartford – Industrial$0.00.0%0.0%
Hartford – Multifamily$0.00.0%0.0%
Hartford – Office$24.98.7%-0.4%
Hartford – Other$0.00.0%0.0%
Hartford – Retail$126.038.7%-3.9%
Hartford – Self Storage$0.00.0%0.0%
Houston-Sugar Land-Baytown, TX MSA$1,237.04.7%0.3%
Houston – Hotel$472.048.3%2.4%
Houston – Industrial$28.34.6%-0.6%
Houston – Multifamily$22.60.1%0.1%
Houston – Office$564.216.1%2.1%
Houston – Other$65.911.2%0.5%
Houston – Retail$84.02.1%0.0%
Houston – Self Storage$0.00.0%0.0%
Indianapolis-Carmel, IN MSA$157.82.6%-0.4%
Indianapolis – Hotel$95.715.6%-2.6%
Indianapolis – Industrial$0.00.0%0.0%
Indianapolis – Multifamily$0.00.0%0.0%
Indianapolis – Office$59.99.6%-0.7%
Indianapolis – Other$0.00.0%0.0%
Indianapolis – Retail$2.30.6%-1.0%
Indianapolis – Self Storage$0.00.0%0.0%
Jacksonville, FL MSA$111.92.1%0.1%
Jacksonville – Hotel$0.00.0%0.0%
Jacksonville – Industrial$0.00.0%0.0%
Jacksonville – Multifamily$0.00.0%0.0%
Jacksonville – Office$0.00.0%0.0%
Jacksonville – Other$0.00.0%0.0%
Jacksonville – Retail$111.928.9%0.3%
Jacksonville – Self Storage$0.00.0%0.0%
Kansas City, MO-KS MSA$102.91.8%0.3%
Kansas City – Hotel$29.812.4%-0.2%
Kansas City – Industrial$0.00.0%0.0%
Kansas City – Multifamily$3.80.1%0.0%
Kansas City – Office$0.00.0%0.0%
Kansas City – Other$20.910.5%10.5%
Kansas City – Retail$48.48.5%0.0%
Kansas City – Self Storage$0.00.0%0.0%
Las Vegas-Paradise, NV MSA$582.22.5%1.4%
Las Vegas – Hotel$0.00.0%0.0%
Las Vegas – Industrial$0.00.0%0.0%
Las Vegas – Multifamily$0.00.0%0.0%
Las Vegas – Office$0.00.0%0.0%
Las Vegas – Other$325.040.3%40.3%
Las Vegas – Retail$257.27.0%0.4%
Las Vegas – Self Storage$0.00.0%0.0%
Los Angeles-Long Beach-Santa Ana, CA MSA$1,661.83.1%0.6%
Los Angeles – Hotel$84.01.5%0.0%
Los Angeles – Industrial$0.00.0%0.0%
Los Angeles – Multifamily$1.60.0%-1.3%
Los Angeles – Office$453.13.7%3.4%
Los Angeles – Other$116.43.4%0.8%
Los Angeles – Retail$999.015.6%2.0%
Los Angeles – Self Storage$7.70.9%0.9%
Louisville/Jefferson County, KY-IN MSA$70.42.3%0.0%
Louisville – Hotel$0.00.0%0.0%
Louisville – Industrial$0.00.0%0.0%
Louisville – Multifamily$0.00.0%0.0%
Louisville – Office$0.00.0%0.0%
Louisville – Other$0.00.0%0.0%
Louisville – Retail$70.413.9%-0.6%
Louisville – Self Storage$0.00.0%0.0%
Memphis, TN-AR-MS MSA$78.93.2%-0.5%
Memphis – Hotel$13.36.0%-0.2%
Memphis – Industrial$0.00.0%0.0%
Memphis – Multifamily$0.00.0%0.0%
Memphis – Office$0.00.0%-4.1%
Memphis – Other$5.314.7%-3.3%
Memphis – Retail$60.316.4%-0.2%
Memphis – Self Storage$0.00.0%0.0%
Miami-Fort Lauderdale-Pompano Beach, FL MSA$260.91.0%-0.1%
Miami – Hotel$40.40.8%0.0%
Miami – Industrial$0.00.0%0.0%
Miami – Multifamily$0.00.0%0.0%
Miami – Office$4.10.1%0.0%
Miami – Other$0.00.0%0.0%
Miami – Retail$216.43.8%-0.6%
Miami – Self Storage$0.00.0%0.0%
Milwaukee-Waukesha-West Allis, WI MSA$218.68.9%0.0%
Milwaukee – Hotel$16.610.3%-0.8%
Milwaukee – Industrial$0.00.0%0.0%
Milwaukee – Multifamily$0.00.0%0.0%
Milwaukee – Office$96.517.7%0.0%
Milwaukee – Other$0.00.0%0.0%
Milwaukee – Retail$105.623.1%-0.1%
Milwaukee – Self Storage$0.00.0%0.0%
Minneapolis-St. Paul-Bloomington, MN-WI MSA$1,918.722.7%2.0%
Minneapolis – Hotel$272.144.6%3.0%
Minneapolis – Industrial$0.00.0%0.0%
Minneapolis – Multifamily$0.00.0%-0.7%
Minneapolis – Office$88.04.4%1.1%
Minneapolis – Other$158.631.8%30.9%
Minneapolis – Retail$1,400.074.1%-0.8%
Minneapolis – Self Storage$0.00.0%0.0%
Nashville-Davidson-Murfreesboro-Franklin, TN MSA$64.71.1%0.0%
Nashville – Hotel$51.63.5%0.0%
Nashville – Industrial$0.00.0%0.0%
Nashville – Multifamily$0.00.0%0.0%
Nashville – Office$0.00.0%0.0%
Nashville – Other$0.00.0%0.0%
Nashville – Retail$13.11.8%0.0%
Nashville – Self Storage$0.00.0%0.0%
New Orleans-Metairie-Kenner, LA MSA$122.13.4%-0.3%
New Orleans – Hotel$59.95.2%-0.1%
New Orleans – Industrial$0.00.0%0.0%
New Orleans – Multifamily$8.30.9%0.0%
New Orleans – Office$27.05.0%-0.3%
New Orleans – Other$14.79.6%0.0%
New Orleans – Retail$12.21.8%-1.4%
New Orleans – Self Storage$0.00.0%0.0%
New York-Northern New Jersey-Long Island, NY-NJ-PA MSA$7,097.65.3%0.6%
New York City – Hotel$832.720.2%0.6%
New York City – Industrial$120.33.0%-0.1%
New York City – Multifamily$771.42.1%0.7%
New York City – Office$1,428.92.9%-0.1%
New York City – Other$1,577.96.9%0.2%
New York City – Retail$2,366.318.2%2.4%
New York City – Self Storage$0.00.0%0.0%
Orlando-Kissimmee, FL MSA$106.91.0%-0.1%
Orlando – Hotel$20.90.8%-0.3%
Orlando – Industrial$0.00.0%0.0%
Orlando – Multifamily$0.00.0%0.0%
Orlando – Office$57.713.3%-0.3%
Orlando – Other$0.00.0%0.0%
Orlando – Retail$28.43.2%0.0%
Orlando – Self Storage$0.00.0%0.0%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD MSA$900.24.3%0.2%
Philadelphia – Hotel$134.114.4%3.1%
Philadelphia – Industrial$10.30.3%0.0%
Philadelphia – Multifamily$41.10.4%0.0%
Philadelphia – Office$306.67.7%0.6%
Philadelphia – Other$389.031.0%-0.6%
Philadelphia – Retail$19.10.9%-0.2%
Philadelphia – Self Storage$0.00.0%0.0%
Phoenix-Mesa-Scottsdale, AZ MSA$236.41.2%0.0%
Phoenix – Hotel$33.01.9%0.0%
Phoenix – Industrial$0.00.0%0.0%
Phoenix – Multifamily$0.00.0%0.0%
Phoenix – Office$55.62.4%-0.1%
Phoenix – Other$8.50.9%0.0%
Phoenix – Retail$139.36.5%0.4%
Phoenix – Self Storage$0.00.0%0.0%
Pittsburgh, PA MSA$243.85.1%-1.2%
Pittsburgh – Hotel$26.612.8%0.0%
Pittsburgh – Industrial$0.00.0%0.0%
Pittsburgh – Multifamily$0.00.0%-1.6%
Pittsburgh – Office$104.09.3%-0.7%
Pittsburgh – Other$105.430.0%-3.0%
Pittsburgh – Retail$7.81.3%0.0%
Pittsburgh – Self Storage$0.00.0%-4.1%
Portland-Vancouver-Beaverton, OR-WA MSA$359.34.1%0.4%
Portland – Hotel$296.033.3%0.0%
Portland – Industrial$0.00.0%0.0%
Portland – Multifamily$38.10.9%0.9%
Portland – Office$25.25.1%-0.1%
Portland – Other$0.00.0%0.0%
Portland – Retail$0.00.0%0.0%
Portland – Self Storage$0.00.0%0.0%
Raleigh-Cary, NC MSA$32.40.9%0.0%
Raleigh – Hotel$15.36.2%-0.5%
Raleigh – Industrial$0.00.0%0.0%
Raleigh – Multifamily$0.00.0%0.0%
Raleigh – Office$0.00.0%0.0%
Raleigh – Other$6.63.6%0.0%
Raleigh – Retail$10.63.8%-0.1%
Raleigh – Self Storage$0.00.0%0.0%
Richmond, VA MSA$157.64.7%-0.1%
Richmond – Hotel$0.00.0%0.0%
Richmond – Industrial$0.00.0%0.0%
Richmond – Multifamily$0.00.0%0.0%
Richmond – Office$0.00.0%0.0%
Richmond – Other$12.88.8%0.0%
Richmond – Retail$144.730.9%-0.2%
Richmond – Self Storage$0.00.0%0.0%
Riverside-San Bernardino-Ontario, CA MSA$301.42.9%0.0%
Riverside – Hotel$52.211.6%-0.1%
Riverside – Industrial$0.00.0%0.0%
Riverside – Multifamily$0.00.0%0.0%
Riverside – Office$0.00.0%0.0%
Riverside – Other$0.00.0%0.0%
Riverside – Retail$249.212.4%0.1%
Riverside – Self Storage$0.00.0%0.0%
Sacramento-Arden-Arcade-Roseville, CA MSA$17.00.3%0.0%
Sacramento – Hotel$0.00.0%0.0%
Sacramento – Industrial$0.00.0%0.0%
Sacramento – Multifamily$0.00.0%0.0%
Sacramento – Office$6.10.8%0.0%
Sacramento – Other$10.92.8%0.0%
Sacramento – Retail$0.00.0%0.0%
Sacramento – Self Storage$0.00.0%0.0%
Salt Lake City, UT MSA$9.30.2%0.1%
Salt Lake City – Hotel$6.11.9%-0.2%
Salt Lake City – Industrial$0.00.0%0.0%
Salt Lake City – Multifamily$0.00.0%0.0%
Salt Lake City – Office$0.00.0%0.0%
Salt Lake City – Other$0.00.0%0.0%
Salt Lake City – Retail$3.20.4%0.4%
Salt Lake City – Self Storage$0.00.0%0.0%
San Antonio, TX MSA$132.32.0%-0.1%
San Antonio – Hotel$17.46.9%-0.1%
San Antonio – Industrial$0.00.0%0.0%
San Antonio – Multifamily$0.00.0%0.0%
San Antonio – Office$0.00.0%0.0%
San Antonio – Other$0.00.0%0.0%
San Antonio – Retail$114.914.8%0.1%
San Antonio – Self Storage$0.00.0%0.0%
San Diego-Carlsbad-San Marcos, CA MSA$46.30.4%0.0%
San Diego – Hotel$39.32.0%0.0%
San Diego – Industrial$0.00.0%0.0%
San Diego – Multifamily$4.10.1%0.0%
San Diego – Office$0.00.0%0.0%
San Diego – Other$0.00.0%0.0%
San Diego – Retail$2.90.2%0.0%
San Diego – Self Storage$0.00.0%0.0%
San Francisco-Oakland-Fremont, CA MSA$836.23.2%2.2%
San Francisco – Hotel$100.63.3%0.0%
San Francisco – Industrial$0.00.0%0.0%
San Francisco – Multifamily$447.65.7%5.5%
San Francisco – Office$197.82.0%1.5%
San Francisco – Other$38.61.4%0.0%
San Francisco – Retail$51.64.5%-0.9%
San Francisco – Self Storage$0.00.0%0.0%
San Jose-Sunnyvale-Santa Clara, CA MSA$58.50.3%0.0%
San Jose – Hotel$35.30.5%0.0%
San Jose – Industrial$0.00.0%0.0%
San Jose – Multifamily$0.00.0%0.0%
San Jose – Office$23.20.3%0.0%
San Jose – Other$0.00.0%0.0%
San Jose – Retail$0.00.0%0.0%
San Jose – Self Storage$0.00.0%0.0%
Seattle-Tacoma-Bellevue, WA MSA$61.30.3%0.0%
Seattle – Hotel$61.34.3%0.0%
Seattle – Industrial$0.00.0%0.0%
Seattle – Multifamily$0.00.0%0.0%
Seattle – Office$0.00.0%0.0%
Seattle – Other$0.00.0%0.0%
Seattle – Retail$0.00.0%0.0%
Seattle – Self Storage$0.00.0%0.0%
St. Louis, MO-IL MSA$208.74.8%0.0%
St. Louis – Hotel$1.70.5%0.0%
St. Louis – Industrial$0.00.0%0.0%
St. Louis – Multifamily$3.20.2%0.0%
St. Louis – Office$0.00.0%0.0%
St. Louis – Other$14.02.8%0.0%
St. Louis – Retail$189.819.8%-0.5%
St. Louis – Self Storage$0.00.0%0.0%
Tampa-St. Petersburg-Clearwater, FL MSA$116.21.1%0.0%
Tampa – Hotel$58.98.2%0.1%
Tampa – Industrial$0.00.0%0.0%
Tampa – Multifamily$0.00.0%0.0%
Tampa – Office$19.62.6%0.0%
Tampa – Other$0.00.0%0.0%
Tampa – Retail$37.75.0%-0.1%
Tampa – Self Storage$0.00.0%0.0%
Tucson, AZ MSA$156.94.4%-0.1%
Tucson – Hotel$0.00.0%0.0%
Tucson – Industrial$0.00.0%0.0%
Tucson – Multifamily$0.00.0%0.0%
Tucson – Office$0.00.0%0.0%
Tucson – Other$0.00.0%0.0%
Tucson – Retail$156.918.9%0.1%
Tucson – Self Storage$0.00.0%0.0%
Virginia Beach-Norfolk-Newport News, VA-NC MSA$190.23.9%-0.3%
Virginia Beach – Hotel$22.14.9%-3.1%
Virginia Beach – Industrial$0.00.0%0.0%
Virginia Beach – Multifamily$0.00.0%0.0%
Virginia Beach – Office$0.00.0%0.0%
Virginia Beach – Other$4.43.5%0.1%
Virginia Beach – Retail$163.619.1%0.0%
Virginia Beach – Self Storage$0.00.0%0.0%
Washington-Arlington-Alexandria, DC-VA-MD-WV MSA$844.92.6%0.6%
Washington, DC – Hotel$31.22.9%-0.4%
Washington, DC – Industrial$0.00.0%0.0%
Washington, DC – Multifamily$0.00.0%0.0%
Washington, DC – Office$640.58.4%1.8%
Washington, DC – Other$38.72.7%0.0%
Washington, DC – Retail$134.53.9%1.7%
Washington, DC – Self Storage$0.00.0%0.0%
Grand Total$26,057.83.5%0.4%

About CRED iQ

CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.

The platform also offers a highly efficient valuation engine which can be leveraged across all property types and geographies. Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.

CRED-iQ-Market-Delinquency-Tracker-March-2023Download

March 2023 Delinquency Report

By
CRED iQ
-
0
DQ = All delinquent CMBS loans in the conduit and SASB universe, including specially serviced and non-specially serviced loans
SS = All specially serviced CMBS loans in the conduit and SASB universe, including current, delinquent and REO
DQ + SS = All distressed CMBS loans in the conduit and SASB universe that are delinquent, specially serviced, or a combination of both

The CRED iQ delinquency rate for CMBS for the month of March 2023 increased for the second consecutive month to 3.77%. The delinquency rate was 19 basis points higher than the prior month’s delinquency rate of 3.58%. The increases in delinquency are congruent with headline risk related to industry-wide concerns surrounding commercial real estate debt in an economic slowdown. The delinquency rate is equal to the percentage of all delinquent specially serviced loans and delinquent non-specially serviced loans, for CRED iQ’s sample universe of $600+ billion in CMBS conduit and single asset single-borrower (SASB) loans. CRED iQ’s special servicing rate, equal to the percentage of CMBS loans that are with the special servicer (delinquent and non-delinquent), also increased month-over-month to 5.53% from 5.10%. The special servicing rate increased by approximately 40 basis points in each of the two preceding months. Aggregating the two indicators of distress – delinquency rate and special servicing rate – into an overall distressed rate (DQ + SS%) equals 5.73% of CMBS loans that are specially serviced, delinquent, or a combination of both. In parallel with delinquency and special servicing rates, the overall distressed rate increased compared to the prior month’s distressed rate of 5.29%. Distressed rates generally track slightly higher than special servicing rates as most delinquent loans are also with the special servicer.

DQ = All delinquent CMBS loans in the conduit and SASB universe, including specially serviced and non-specially serviced loans
SS = All specially serviced CMBS loans in the conduit and SASB universe, including current, delinquent and REO
DQ + SS = All distressed CMBS loans in the conduit and SASB universe that are delinquent, specially serviced, or a combination of both

By property type, focus will naturally narrow on the delinquency rate for the office sector given the headwinds the property type is facing. The delinquency rate for loans secured by office properties increased to 3.09% as of March 2023, which was 78 basis points higher than February and represented a 34% month-over-month increase. The office delinquency rate has increased for four consecutive months and is at its highest level since 2020 when CRED iQ started tracking delinquency rates.

Major delinquencies continue to stress the office landscape. Last month was headlined by Columbia Property Trust’s payment default on $1.7 billion in mortgage debt secured by seven office properties located in New York, San Francisco, Boston, and Jersey City. Among this month’s newly delinquent office loans was a $350 million floating-rate mortgage secured by the Gas Company Tower in Los Angeles, CA. The loan defaulted at maturity in February 2023 and subsequently transferred to special servicing. The loan’s credit issues included additional leverage from $115 million in mezzanine debt and an interest rate cap agreement that expired in February 2023. Additionally, reported occupancy for the DTLA office tower was 73%, adding to the recipe of distress.

Delinquency rates for retail (7.86%), lodging (4.58%), office (3.09%), and multifamily (3.04%) all exhibited month-over-month increases. Delinquency rates for industrial (0.33%) and self-storage (0.05%) were relatively unchanged compared to the prior month.

Pivoting to special servicing rates, all property types besides self-storage exhibited month-over-month increases in the percentage of loans transferred to the special servicer. The retail sector has the highest specially serviced rate among all property types at 11.25%. The elevated special servicing rate for retail properties continues to be anchored by regional malls. A $242.2 million mortgage secured by a 780,000-SF portion of the Fair Oaks Mall in Fairfax, VA transferred to special servicing in late-February 2023 due to anticipated maturity default ahead of the loan’s May 2023 maturity date. Similarly, a $300 million mortgage secured by the 1.0 million-SF Bergen Town Center transferred to special servicing in March 2023 ahead of its May 2023 maturity date. Given the current refi environment, workouts for both loans may benefit from relief in the form of extension or modifications.

Aside from retail, the special servicing rate for lodging came in at 6.10%, a modest increase compared to February. The special servicing rate for office surged to 4.97%, representing a 19% month-over-month increase. Multifamily (3.78%) and industrial (0.43%) special servicing rates also exhibited increases. Special servicing inventory for loans secured by self-storage properties has been negligible for the past two months.

DQ + SS = All distressed CMBS loans in the conduit and SASB universe that are delinquent, specially serviced, or a combination of both

CRED iQ’s CMBS distressed rate (DQ + SS%) by property type accounts for loans that qualify for either delinquent or special servicing subsets. This month, the overall distressed rate for CMBS increased to 5.73%. The increase was 44 basis points higher than February’s distressed rate (5.29%), equal to an 8% increase. Although all property types experienced higher distress in March 2023 compared to February, the office sector was the biggest driver behind the change. Lastly, the spread between the overall delinquency rate and the special servicing rate increased in March 2023, indicating that many loans were transferred to special servicing preemptively prior to payment default or delinquency. This spread has potential to tighten as special servicing loans that are current in payment deteriorate in payment status as workouts are prolonged.

For additional information about two of this month’s largest loans that transferred to special servicing, click View Details below:

[View Details][View Details]
LoanGas Company TowerFair Oaks Mall
Balance$350 million$242.2 million
Special Servicer Transfer Date2/10/20232/28/2023

About CRED iQ

CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.

The platform also offers a highly efficient valuation engine which can be leveraged across all property types and geographies. Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.

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CRE CLO Interest Rate Cap Agreements: Risks and Opportunities

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CRED iQ sourced and analyzed interest rate cap agreements for nearly 700 floating-rate loans that have been securitized in CRE CLOs (Commercial Real Estate Collateralized Loan Obligations). Interest rate cap agreements included in the analysis covered more than $30 billion in aggregate notional balance. The analysis was completed in response to an environment conditioned by rising interest rates, and corresponding benchmark indexes for floating-rate commercial real estate debt that have risen dramatically over the past year. In some ways, March 2023 marks an allegorical anniversary of this era of rising rates. One of the primary benchmarking indexes for floating-rate commercial real estate debt — SOFR (Secured Overnight Financing Rate) — has risen from ~0.5% in March 2022 to ~4.5% as of mid-March 2023. The velocity of interest rate increases has made interest rate cap agreements a timely focus point for the commercial real estate industry that heavily relies of floating-rate debt.


Key Takeaways:

  • CRED iQ identified and compiled key parameters for interest rate cap agreements for nearly 700 floating-rate commercial real estate loans totaling more than $30 billion in notional.
  • Interest rate cap agreements in the sample dataset have termination dates ranging from 2023 to 2026. Of those rate cap agreements with expiration dates in the next four years, 40% have expiration dates that occur prior to respective loans’ maturity dates.
  • Current note rates, absent a rate cap agreement, are approximately 200 bps higher on average than effective note rates that have been capped via agreements’ strike prices.
  • From a credit risk perspective, rate cap agreement expirations are a source of potential pressure on debt service coverage ratios and also present refinancing risk at loan maturity.
  • Rate cap expirations can also be a source of opportunities, if identified in a timely manner, to monetize in-the-money agreements as well as facilitate transaction volume.

CRED iQ’s observations included approximately 680 securitized floating-rate mortgages with an aggregate outstanding balance totaling over $25 billion. The observations do not represent an exhaustive list of the CRE CLO universe, but rather a significant subset of the CRE CLO loan population — in many cases, granular information related to interest rate cap agreements was not widely available for the entire universe of CRE CLO loans. Due to the structure of the mortgages observed, the notional balances of the interest rate cap agreements were often higher than outstanding loan balances to account for non-securitized portions of the whole loans and future funding amounts that may be available to borrowers to carry out business plans for stabilization and repositioning of loan collateral.

In the analysis, multifamily properties accounted for most of the loan collateral composition by property type. Loans secured by multifamily properties accounted for 76% of the total quantity of floating-rate mortgages in the dataset. Generally, multifamily properties serving as collateral were slated for transition to higher quality/class assets. Loans secured by office properties accounted for 9% of the total and industrial loans accounted for 6%. Often, these office and industrial properties needed stabilization in the form of lease-up or repositioning at the time of origination.

SMBC is the most prevalent provider of interest rate cap agreements. The firm provided nearly 90% of the agreements for the loans in CRED iQ’s analysis. As many as eight additional firms provided interest rate cap agreements, including US Bank (5% of total) and Goldman Sachs (4% of total). Of note, many interest rate cap providers will only provide agreements if a prior lending relationship exists, which can contribute to the counterparty concentration observed with SMBC.

The termination date of an interest rate cap agreement compared to a loan’s maturity date can be a source of credit risk. The proverbial wall of maturities — detailed in CRED iQ’s 2023 CRE Maturity Outlook — may also have arêtes of rate cap expirations on the windward side. In the chart below, interest rate cap agreements in the analysis were grouped together by expiration date. There are three quarters — Q3 2023, Q1 2024, and Q2 2024 — in which nearly $5 billion in notional rate cap agreements are set to expire. Furthermore, the dataset includes approximately 100 expiring agreements spanning five consecutive quarters, starting in Q3 2023. This visualization of expiring interest rate cap agreements shares similarities to widely circulated maturity wall data over the near to intermediate term; although timing of rate cap expirations and maturities is not commonly coterminous.

If the interest rate cap agreement expires before the loan is scheduled to mature, debt service on the mortgage could surge substantially, absent a new or extended interest rate cap agreement. To put this in perspective, current note rates, absent a rate cap agreement, are approximately 200 bps higher on average than effective notes rates that have been capped via strike prices from respective interest rate cap agreements. Of the 682 loans observed by CRED iQ, approximately 40% were structured with interest rate cap agreements that were scheduled to terminate prior to loans’ maturity dates. This is especially relevant considering all loans in the analysis benefitted from the in-place interest rate cap agreement as of February 2023. In other words, every single rate cap agreement in the analysis was activated and capping respective borrowers’ debt service.

Opportunistically, real estate professionals can view interest rate cap agreements with remaining term as a method of monetization. Keeping in mind the bridge financing attributes of loans securitized in CRE CLOs, borrowers have historically looked to lock in fixed-rate financing after the completion of a business plan or the stabilization of the collateral property. Locking in fixed-rate financing in 2023 may no longer be a palatable option given the run up in interest rates; however, the particular dynamics and attributes of individual properties’ cash flows and credit risk can still facilitate refinancing or sales transactions. Some deals are stilling closing. In these cases, if a loan prepays and the interest rate cap agreement still has term remaining, the rate cap agreement likely has value and can be monetized to the benefit of the borrower to close a transaction. Timeliness is an important factor in the monetization of interest rate cap agreements; all else equal the values of rate caps decline as the agreements approach termination dates.

We conclude the analysis with a few notable examples of interest rate cap agreements, including a time-series view of the exponential rise in the cost of capping floating-rate debt. Using rate cap pricing information from Derivative Logic, an independent hedge advisory firm, we leveraged CRED iQ’s property and loan-level data to evaluate the year-over-year change in cost for interest rate cap protection for five of the largest floating-rate mortgages in the dataset. One of the most extreme examples was a $337.5 million agreement expiring in February 2024 with a strike price of 4.00%. A year ago, the rate cap for such a deal would have cost approximately $780,000 but the cost had risen to $3.5 million as of mid-March 2023 — equal to a 348% year-over-year increase. In fact, all five sample rate caps shown in the chart and table below exhibited more than 2x growth in total costs over the course of trailing 12 months.

No matter the perspective, knowing the parameters and monetary values of interest rate cap agreements will play an integral part in facilitating commercial real estate transactions over the next year and beyond, with or without stable interest rates.
For the complete dataset featuring detailed loan information and specific attributes of individual interest rate cap agreements, please reach out to team@cred-iq.com. The dataset includes rate cap expiration dates, notional amounts, and strike prices among other data points.

Click Here to Access Rate Cap Dataset

About CRED iQ

CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.

The platform also offers a highly efficient valuation engine which can be leveraged across all property types and geographies. Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.

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