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SF Credit Brief: U.S. CMBS Delinquency Rate Increased 3 Bps To 2.5% In September

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SF Credit Brief: U.S. CMBS Delinquency Rate Increased 3 Bps To 2.5% In September

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Overall Delinquency Rate Increased Slightly To 2.5%

The overall U.S. commercial mortgage-backed securities (CMBS) delinquency rate (DQ rate) increased three basis points (bps) month over month to 2.5% in September and fell 187 bps from 4.4% a year earlier (see chart 1). By dollar amount, total delinquencies increased to $18.8 billion, representing a net increase of $189.8 million month over month and a decrease of $10.2 billion year over year (see chart 2).

Chart 1

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Chart 2

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Large Loans Moved To Delinquency

Although the overall DQ rate increased only slightly, several loans became delinquent in September (see table 1 for the top five loans by balance).

The largest delinquent loan was 1880 Broadway/15 Central Park West Retail, which is secured by an 84,432 sq. ft. retail property located in New York, NY. According to the servicer, the property was 100% occupied with a net cash flow (NCF) debt service coverage ratio (DSCR) of 2.57x as of first-quarter 2022, up from 1.95x at issuance. The loan first appeared on servicer watchlist because the Best Buy lease (45,839 sq. ft., 54.3% of net rentable area) expires on Jan. 31, 2023. The borrower had planned to refinance and pay off the loan on or before the Sept. 6, 2022, maturity date. However, according to the September remittance data, the loan missed its balloon date and was reported as a nonperforming matured balloon loan.

Table 1

Top Five Delinquent Loans In September 2022
Property City State Property type Delinquency balance ($)
1880 Broadway/15 Central Park West Retail New York New York Retail 125,000,000
Eastview Mall and Commons(i) Victor New York Retail 120,000,000
Glenbrook Square Fort Wayne Indiana Retail 93,319,913
Crossroads Center Saint Cloud Minnesota Retail 84,462,325
750 Lexington Avenue New York New York Office 82,437,041
(i)The loan has two pari passu pieces: the A-1 and A-2 notes. The A-1 note was reported as nonperforming matured balloon, which is considered delinquent, while the A-2 note was reported as in grace period, which is not considered delinquent.

Seriously Delinquent Loan Levels Are Still High

Loans that are 60-plus-days delinquent (i.e., seriously delinquent loans) represented 92.9% of delinquent loans as of September (see chart 3). Further, loans that are 120-plus-days delinquent (those reported in the CRE Finance Council investor reporting package with a loan code status of "6") continued to represent the largest portion of delinquent loans, at 31.9% (see chart 4), with a total outstanding balance of $6.0 billion as of September.

Chart 3

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Chart 4

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Special Servicing Rate Increased 6 Bps

The overall special servicing rate increased 6 bps month over month to 4.2% in September (see chart 5), with office increasing 28 bps to 3.3%, retail increasing 20 bps to 10.5%, and lodging decreasing 18 bps to 6.4%. The overall special servicing rate has been declining since it peaked at 9.5% in September 2020.

The largest office loan in special servicing was 1500 Market Street, a 1,760,091 sq. ft. mixed-use property located in Philadelphia. The property was built in 1974 and renovated in 2019. According to the servicer, the loan was scheduled to mature in December 2021 and was transferred to special servicing on Aug. 22, 2022, due to imminent maturity default. The borrower has requested a maturity extension due its inability to refinance and pay off the loan at maturity. The special servicer is currently evaluating the borrower's request. In April 2022, a cash trap was implemented because the debt yield was reported at 5.64% as of September 2020, which was below the 6.00% threshold. The DSCR decreased to 0.91x in 2021 from 1.23x in 2020 due occupancy declining to 69.4% as of the Dec. 31, 2021.

The borrower is currently focused on retaining existing tenants and is actively seeking to fill the vacant space.

Chart 5

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DQ Rates Increased For All Property Types Except Lodging And Industrial

Chart 6 shows the historical DQ rate trend by property type. By balance, DQ rates decreased for lodging (11 bps; 210 loans; totaling $4.74 billion) and industrial (8 bps; 14 loans; $191.3 million), and increased for retail (35 bps; 287 loans; $8.07 billion), office (17 bps; 123 loans; $3.05 billion), and multifamily (14 bps; 64 loans; $964.5 million).

There were 68 newly delinquent loans totaling $1.7 billion in September. These include 19 retail loans ($708.2 million), 16 office loans ($490.7 million), 16 multifamily loans ($297.2 million), 11 lodging loans ($130.7 million), and two industrial loans ($10.0 million).

Charts 7 and 8 show the year-over-year change in the property type composition for delinquent loans. Retail and office increased to 43.0% and 16.2%, respectively, from 41.6% and 11.1%, while lodging fell to 25.3% from 34.1%.

Chart 6

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Chart 7

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Chart 8

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Largest Loans Moved Out Of Delinquency

The overall DQ rate increased slightly in September, despite 48 loans moving out of delinquency. Table 2 shows the top five of these loans by balance.

Table 2

Top Five Loans That Moved Out Of Delinquency In September 2022
Property name City State Property type Outstanding balance ($)
Greenway Plaza Houston Texas Office 465,000,000
Westfield MainPlace Santa Ana California Retail 140,000,000
Eastview Mall and Commons(i) Victor New York Retail 90,000,000
Parkdale Mall & Crossing Beaumont Texas Retail 64,337,700
Vintage Park Houston Texas Retail 42,514,792
(i)The loan has two pari passu pieces: the A-1 and A-2 notes. The A-1 note was reported as nonperforming matured balloon, which is considered delinquent, while the A-2 note was reported as in grace period, which is not considered delinquent.

This report does not constitute a rating action.

Primary Credit Analyst:Senay Dawit, New York + 1 (212) 438 0132;
senay.dawit@spglobal.com
Secondary Contacts:Benjamin Ach, New York 212 438 1986;
benjamin.ach@spglobal.com
Tamara A Hoffman, New York + 1 (212) 438 3365;
tamara.hoffman@spglobal.com
Ambika Garg, Chicago + 1 (312) 233 7034;
ambika.garg@spglobal.com
Deegant R Pandya, New York + 1 (212) 438 1289;
deegant.pandya@spglobal.com
Research Contact:James M Manzi, CFA, Washington D.C. + 1 (202) 383 2028;
james.manzi@spglobal.com

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