The volume of commercial mortgage-backed securities (CMBS) loans that are classified as delinquent spiked by 49.4% to $27.91 billion during the 10 months of this year, according to data from Trepp Inc. This volume represents 5.07% of the $601.98 billion universe tracked by Trepp.
In comparison, delinquencies at the end of 2022 amounted to 3.03% of the $616.15 billion universe then extant.
The office sector fueled this increase with a 261% upswing in delinquency volumes over the 10-month period through October. This sector totaled 199 loans with a balance of $9.59 billion, or 5.91% of all CMBS office loans were at least 30 days late with their payments, as of the end of October. In comparison, 115 loans with a balance of $2.65 billion, or 1.63% of office loans, were delinquent during all of 2022.
“The sector’s prospects are unlikely to improve as office occupancy rates have declined in most of the country’s major markets,” said Orest Mandzy, managing editor for commercial real estate at Trepp. “That’s been driven by a substantial pullback in demand from office-using tenants. Hit especially hard have been loans with floating coupons that are maturing and need interest-rate cap agreements in place before they qualify for term extensions. Those rate caps have skyrocketed in price in lockstep with interest rates.”
CMBS loans against every other property type, except for hotels, had an improvement in delinquency over the first nine months of the year. The number of hotel loans that are delinquent declined sharply, to 124 from 179, but their dollar balance increased by 4.62%. Among the culprits behind the increase was the $725 million mortgage, securitized through Hilton USA Trust, 2016-SFP, against the 1,024-room Hilton Parc 55 and the 1,919-room Hilton San Francisco Union Square.
“The properties’ owner, Park Hotels & Resorts Inc., defaulted on the loan in June as the two properties hadn’t generated positive cash flow since 2020,” said Mandzy. “They are now in the process of turning them over to the trust in a deed-in-lieu of foreclosure.”
