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SF Credit Brief: Overall U.S. CMBS Delinquency Rate Increased 18 Bps To 3.8% In September; Office Loan Delinquency Rate Climbs For Ninth Consecutive Month

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


The Overall Delinquency Rate Increased 18 Basis Points

In this report, S&P Global Ratings provides observations and analyses across the rated U.S. private-label CMBS universe, representing $722.7 billion. The overall U.S. CMBS delinquency rate (DQ rate) increased 18 basis points (bps) month over month to 3.8% in September 2023. The rate increased 126 bps from a year earlier (see chart 1), a 46.4% increase year over year by DQ balance. By dollar amount, total delinquencies increased to $27.5 billion, a net increase of $1.3 billion month over month and a net increase of $8.7 billion year over year (see chart 2).

Chart 1


Chart 2


Several Large Loans Moved Into Delinquency

The overall DQ rate increased in August with an additional 98 loans (totaling $2.6 billion) becoming delinquent. Table 1 shows the top five of these loans by balance.

The largest delinquent loan was 1407 Broadway, which is secured by a 1.1 million-sq.-ft. office property located between 38th and 39th Streets and Broadway in New York. Built in 1950 and renovated in 2018, the property's tenants include wholesale footwear distributor VCS Group LLC (52,250 sq. ft.; 4.7% of net rentable area [NRA]), Comcast Cable Communications (41,657 sq. ft.; 3.7%), and clothing wholesaler S. Rothschild & Co. Inc. (41,167 sq. ft.; 3.7%). The property's debt service coverage ratio was 1.12x and occupancy was 82.0% as of the trailing 12-month period ending June 30, 2023. The loan, which matures on Nov. 9, 2023, transferred to the special servicer, KeyBank N.A., on Aug. 15, 2023, due to payment default. The loan has a 30-day-delinquent status as of September 2023.

Table 1

Top five newly delinquent loans in September 2023
Property City State Property type Delinquency balance ($)
1407 Broadway New York New York Office 350,000,000
805 Third Avenue New York New York Office 275,000,000
DUMBO Heights Portfolio Brooklyn New York Office 180,000,000
183 Madison Avenue New York New York Office 160,422,695
1615 L Street Washington District of Columbia Office 134,250,000

Seriously Delinquent Loan Levels Remain High

Loans that are 60-plus-days delinquent (i.e., seriously delinquent loans) represented 88.6% ($24.3 billion) of the delinquent loans in September (see chart 3). Meanwhile, 120-plus-days delinquent loans (i.e., those reported in the CRE Finance Council investor reporting package with a loan code status of "6"), represented 20.1% ($5.5 billion) of the delinquent loans in September (see chart 4). The 120-plus-days delinquent loans have been on an overall downward trend since peaking at 44.6% ($14.9 billion) of delinquent loans in May 2021.

Chart 3


Chart 4


The Special Servicing Rate Increased 33 Bps

The overall special servicing rate increased 33 bps month over month to 6.0% in September (see chart 5). By sector, the special servicing rate rose for office (74 bps to 8.0%), multifamily (35 bps to 2.3%), lodging (16 bps to 6.7%), and retail (12 bps to 9.8%) loans, but remained flat for industrial (0.3%) loans. However, despite increasing in recent months, the overall special servicing rate remains well below the 9.5% peak reached in September 2020.

The largest loan to move into special servicing as of September was 1407 Broadway (discussed above). The second-largest loan to move into special servicing in September was Courtyard by Marriott Portfolio. The loan is secured by a portfolio of 30 limited-service Courtyard Marriott lodging properties totaling 4,379 rooms located across 15 states. The portfolio's debt service coverage ratio was 1.74x and occupancy was 64.0% as of the trailing 12-month period ending March 31, 2023. The loan, which matures on Oct. 15, 2023, was transferred to the special servicer, KeyBank N.A., on Aug. 18, 2023, due to maturity default. The loan has a nonperforming balloon status as of September 2023.

Chart 5


DQ Rates Increased For All Property Types Except Lodging And Retail

Chart 6 shows the historical DQ rate trend by property type. In September, the overall DQ rate increased for office (61 bps to 5.6%; 230 loans; $10.2 billion) for the ninth consecutive month, while multifamily (3 bps to 1.3%; 79 loans; $1.7 billion), and industrial (2 bps to 0.3%; 10 loans; $147.3 million) loans increased marginally. DQ rates decreased for lodging (3 bps to 4.7%; 131 loans; $4.8 billion) and retail (1 bp to 6.4%; 269 loans; $7.8 billion) loans.

There were 98 newly delinquent loans totaling $2.6 billion in September. These included 40 office loans ($1.9 billion), 19 retail loans ($237.4 million), 11 multifamily loans ($200.9 million), six lodging loans ($62.3 million), and two industrial loans ($17.6 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 37.3% from 16.2%) and multifamily (to 6.4% from 5.1%) loans, and decreased for retail (to 28.4% from 43.0%), lodging (to 17.3% from 25.3%), and industrial (to 0.5% from 1.0%) loans.

Chart 6


Chart 7


Chart 8


Several Large Loans Moved Out Of Delinquency

Despite the overall DQ rate increasing in August, 60 loans totaling $1.5 billion moved out of delinquency. Table 2 shows the top five of these loans by balance. The largest loan to move out of delinquency was Aon Center, which is secured by a 2.8 million-sq.-ft. office property located in Chicago. The property is occupied by Aon (391,345 sq. ft.; 14.1% of NRA), a professional services firm specializing in risk, reinsurance, retirement, and health solutions; KPMG (301,912 sq. ft.; 10.9%); and Jones Lang La Salle (200,830 sq. ft.; 7.2%). The loan's debt service coverage ratio was 1.10x and occupancy was 74.0% as of the trailing 12-month period ending June 30, 2023.

The loan, which originally matured on July 1, 2023, was transferred to the special servicer, Situs Holdings, in February 2023 due to an event of default caused by the borrower signing a lease with Blue Cross Blue Shield without receiving the lender's full approval. In addition, the March waterfall payment was short for half of the operating expenses and mezzanine debt service due to a large tax escrow payment. The loan was delinquent in July and August, but a three-year modified extension to July 1, 2026, was approved by the special servicer, as the borrower was not prepared to repay the debt on the original maturity date. Modified terms include a capital infusion and continued cash management with a sweep of excess cash flow to tenant improvements/leasing commission reserves. The loan has a current status as of September 2023.

Table 2

Top five loans that moved out of delinquency in September 2023
Property City State Property type Outstanding balance ($)
Aon Center Chicago Illinois Office 536,000,000
Westfield San Francisco Centre San Francisco California Multiple 167,529,000
Poughkeepsie Galleria Poughkeepsie New York Retail 135,984,560
One Riverway Houston Texas Office 71,322,262
City Creek Center Salt Lake City Utah Retail 68,114,692

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;
Research Contact:James M Manzi, CFA, Washington D.C. + 1 (202) 383 2028;

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