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SF Credit Brief: Overall U.S. CMBS Delinquency Rate Jumped 39 Bps To 3.2% In May 2023; The Largest Increase Since June 2020

(Editor's Note: This report is S&P Global Ratings' monthly summary update of U.S. CMBS delinquency trends.)


The Overall Delinquency Rate Increased 39 Basis Points

The overall U.S. CMBS delinquency rate (DQ rate) increased 39 basis points (bps) month over month to 3.2% in May 2023--the largest increase since June 2020. The rate increased 59 bps from a year earlier (see chart 1). By dollar amount, total delinquencies rose to $22.9 billion, a net increase of $2.8 billion month over month and $3.9 billion year over year (see chart 2).

Chart 1


Chart 2


Several Large Loans Moved Into Delinquency

The overall DQ rate increased in May as an additional 104 loans (totaling $3.6 billion) became delinquent. Table 1 shows the top five of these loans by balance.

The largest delinquent loan was 375 Park Avenue, which is secured by a 38-story, 830,928 sq.-ft. class A office building located between East 52nd and East 53rd Streets in Manhattan. Tenants at the property include Blue Owl Capital Holding (11.9% of net rentable area [NRA]; December 2038 lease expiration), Angeles Wealth Management (9.5% of NRA; January 2027 expiration), and Teacher Insurance Annuity (6.3% of NRA; October 2033 expiration).

The loan first appeared on the servicer's watchlist in June 2021 because the debt service coverage ratio (DSCR) fell to 1.63x as of March 31, 2021, from 2.17x as of year-end 2020. The property's effective gross income declined after the Wells Fargo (28.6% of NRA) lease expired in February 2021. However, in 2022, the borrower was able to lease up 350,000 sq. ft. (42.1%) of NRA, bringing the property's total occupancy to 90.2% as of year-end 2022.

The loan was transferred to the special servicer in May 2023 due to its upcoming maturity date (initially May 6, 2023), and it was later modified and extended to May 6, 2024, with an option to extend to May 6, 2025. According to the modification agreement, the borrower paid $15.0 million upfront and is required to make $40 million in additional principal payments over the next 24 months. The property's DSCR was 0.91x and occupancy was 90.2% as of year-end 2022, according to the servicer. Given the recent modification, we believe the loan will move out of delinquency in June.

Table 1

Top five newly delinquent loans in May 2023
Property City State Property type Delinquency balance ($)
375 Park Avenue New York N.Y. Office 782,750,000
ADV Portfolio Various Various Office 350,000,000
EY Plaza Los Angeles Calif. Office 275,000,000
PFHP Portfolio Various Various Lodging 204,000,000
The Decoration & Design Building New York N.Y. Office 96,590,431

Seriously Delinquent Loan Levels Remain High

Loans that are 60-plus-days delinquent (i.e., seriously delinquent loans) represented 89.7% ($20.6 billion) of the delinquent loans in May (see chart 3). Meanwhile, 120-plus-days delinquent loans (those reported in the CRE Finance Council investor reporting package with a loan code status of "6") represented 18.7% ($4.3 billion) of the delinquent loans (see chart 4).

Chart 3


Chart 4


The Special Servicing Rate Rose 37 Bps

The overall special servicing rate increased 37 bps month over month to 5.3% in May (see chart 5). By sector, the special servicing rate rose for both office (97 bps to 6.1%; the largest month-over-month increase since we began collecting data in July 2020) and retail (12 bps to 10.7%) loans; decreased for multifamily (6 bps to 1.7%) and lodging (12 bps to 5.9%) loans; and remained unchanged (at 0.4%) for industrial loans. Despite increasing, the overall special servicing rate remains well below the 9.5% peak reached in September 2020.

The largest loan to move into special servicing in May was Workspace Property Trust Portfolio. The loan is secured by 86 suburban office properties, 59 flex properties, and one retail property totaling 9.9 million sq. ft. The properties are located in six cities across four states: Arizona (Phoenix), Florida (Tampa, Fort Lauderdale, and West Palm Beach), Minnesota (Minneapolis), and Pennsylvania (Philadelphia). The loan, which matures on July 5, 2023, was transferred to the special servicer on April 25, 2023, due to its upcoming maturity. The special servicer is currently in communication with the borrower and is evaluating potential resolution strategies. According to the servicer, the portfolio's DSCR was 1.61x and occupancy was 80.0% as of year-end 2022. The loan is current as of May.

Chart 5


DQ Rates Increased For All Property Types Except Multifamily And Industrial

Chart 6 shows the historical DQ rate trend by property type. In May, the overall DQ rate increased for office (120 bps to 4.0%; 179 loans; $7.2 billion; the fifth consecutive month of increases), retail (57 bps to 6.5%; 276 loans; $8.0 billion), and lodging (21 bps to 4.0%; 146 loans; $4.1 billion); and it decreased for multifamily (31 bps to 1.0%; 67 loans; $1.3 billion) and industrial (1 bp to 0.4%; 11 loans; $174.2 million).

There were 104 newly delinquent loans totaling $3.6 billion in May. These included 31 office loans ($2.2 billion), 31 retail loans ($730.1 million), 14 multifamily loans ($125.6 million), 10 lodging loans ($384.8 million), and one industrial loan ($8.6 million).

Charts 7 and 8 show the year-over-year change in the property type composition for delinquent loans. DQ composition rates by property type increased year over year for office (to 31.5% from 14.9%) and multifamily (to 5.7% from 3.8%); decreased for retail (to 34.9% from 41.6%) and lodging (to 17.8% from 29.2%; and remained unchanged (at 0.8%) for industrial loans.

Chart 6


Chart 7


Chart 8


Several Large Loans Moved Out Of Delinquency

Although the overall DQ rate increased in May, 51 loans totaling $1.5 billion moved 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 May 2023
City State Property type Outstanding balance ($)
Parkhill City Jamaica N.Y. Multifamily 225,000,000
Federal Center Plaza Washington D.C. Office 130,000,000
West County Center Des Peres Miss. Retail 106,062,102
Solano Mall Fairfield Calif. Retail 105,000,000
515 Madison Avenue New York N.Y. Office 97,010,298

This report does not constitute a rating action.

Primary Credit Analyst:Senay Dawit, New York + 1 (212) 438 0132;
Secondary Contacts:Benjamin Ach, New York + 1 (212) 438 1986;
Tamara A Hoffman, New York + 1 (212) 438 3365;
Ambika Garg, Chicago + 1 (312) 233 7034;
Deegant R Pandya, New York + 1 (212) 438 1289;
Research Contact:James M Manzi, CFA, Washington D.C. + 1 (202) 383 2028;

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