The commercial mortgage-backed securities (CMBS) market has reached a new record for distress rates, according to data from CRED iQ. In August, the distress rate climbed to 11.8 percent, surpassing the previous high of 11.5 percent set in January.
This marks the second consecutive month and third time in four months that the distress rate has increased, reflecting ongoing challenges for property owners dealing with loan maturities, occupancy issues, and refinancing difficulties.
CRED iQ reported that delinquencies rose by 78 basis points to 9.44 percent in August. The special servicing rate also increased to 10.95 percent from 10.33 percent in July. Loans past their maturity date grew significantly to $38.8 billion, making up nearly two-thirds of the $61.1 billion pool tracked by CRED iQ. Of these matured loans, about 41 percent are non-performing—a notable increase from the previous month.
The share of current loans continued its decline for a third straight month, falling to 13.7 percent. Loans categorized as late but not yet delinquent totaled $3.8 billion, showing a slight decrease compared to July.
One example highlighted in the report was a $61 million loan tied to Estates at Palm Bay, a multifamily property in Florida’s Panhandle with 300 units. Despite an occupancy rate of 88 percent and a debt service coverage ratio above 1.4, this interest-only loan became delinquent by 30 days in August.
Despite signs of growing distress within the sector, CMBS issuance remains strong overall. Private lender activity decreased during the second quarter; however, total CMBS debt issued reached $59.55 billion during the first half of this year—a figure representing a 35 percent increase over last year and marking the highest volume seen in more than fifteen years, according to Trepp (https://www.trepp.com/).
“Delinquencies rose 78 basis points to 9.44 percent, while the special servicing rate hit 10.95 percent, up from 10.33 percent in July,” CRED iQ stated.
“The pipeline of future distress is filling quickly as owners work to clear existing defaults,” according to CRED iQ’s analysis.
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