The CRED iQ CRE CLO distress rate added 60 basis points in December – reaching a new high of 13.8%.  Underpinning the distress rate, December’s delinquency rate for collateralized loan obligations came in largely flat at 11.8%; while the special servicing rate saw a 180-basis point increase, reaching 9%.  

CRED iQ’s analysis revealed that that 61.9% of CRE CLOs loans are operating below a 1.00 DSCR (NCF), up from 59.2% last month. Net Cash Flow (NCF) is a key variable in calculating a loan’s DSCR which determines the strength and creditworthiness of a given loan.

Among metro areas, Indianapolis-Carmel continues to lead the U.S. with a 70.6% distress rate. However, that figure trims 270 bps from the November print of CRE CLO loans in some form of distress.

The CRED iQ distress rate includes any loans reported 30 days delinquent or worse, past their maturity, specially serviced or a combination of these.

Fitch Ratings’ overall U.S. CMBS delinquency rate climbed 22 basis points to close 2024 at 2.98%, up from 2.76% in November and 2.31% a year ago. The increase was fueled by a surge in office delinquencies and reduced resolution volume.

Five large office loans with a balance greater than $60 million became newly delinquent in December, totaling $1.03 billion and accounting for 50% of overall new delinquencies and 81% of new office delinquencies. These were largely responsible for a 92-bp increase in office CMBS delinquencies, which ended 2024 at 7.18%.

New 60+ day delinquency volume increased to $2.08 billion in December 2024 from $1.76 billion in November, driven mainly by several larger balance office loans. Office loans accounted for the largest share of new delinquencies (61%, $1.27 billion) followed by retail (15%, $309 million), mixed use (12%, $258 million) and multifamily (5%, $92 million). Term defaults accounted for 51% ($1.06 billion) of new delinquencies, while maturity defaults represented 49% ($1.02 billion).

Resolution volume decreased to $586 million in December from $1.48 billion in November, below the year’s monthly average of $1.05 billion.

Pictured: Worldwide Plaza in New York City, which backs one of five newly delinquent large office loans.

December student housing preleasing for the 2024-2025 academic year set a new record at 47.3%, up 9% from a year ago, according to the latest Yardi Matrix National Student Housing Report. Asking rates also continued to climb, hitting $858 per bed in December and marking a 4.9 percent increase on a year-over-year basis.

The exceptional preleasing indicates a high renewal rate, according to Yardi Matrix, with 51 markets boasting a 50% rate in December and 10 schools already at least 75% preleased. Rent growth inched downward, falling from 6.4% earlier in the leasing cycle to 4.9% in December 2023.

“Many of the markets with the fastest preleasing are seeing the strongest rent growth as operators take advantage of the surge in demand,” according to the report. “Twenty-seven schools with over 10% rent growth in December are, on average, five percent ahead of preleasing last year.”

Conversely, student housing investment is in line with current trends across the real estate industry, as high interest rates continue to impact sales. According to preliminary data, just 73 student housing properties changed hands in 2023 across the Yardi 200, compared to an average of 205 properties sold in 2021 and 2022.

Pictured: James Madison University in Harrisonburg, VA, which saw the fastest year-over-year preleasing growth in the Yardi 200. Photo by Ben Schumin/Wikipedia.

The Trepp CMBS Special Servicing Rate dropped by six basis points in December 2023, falling to 6.78%. However, the long-term trend is still up: Trepp said the special servicing rate closed out 2023 with a total increase of 167 bps year over year.

Most property types actually saw reductions in their special servicing rate last month, aside from the mixed-use category, Trepp reported. After falling 104 bps in November to 6.66%, the mixed-use rate reversed in December, increasing 108 bps to 7.74%.

Most notable was office, which saw its first decline in more than a year, falling 42 bps from 8.87% to 8.45% in December. The retail rate also saw a substantial decline, falling 46 basis points to 9.37% in December.

Similarly, Kroll Bond Rating Agency (KBRA) reported earlier this month that the delinquency rate for KBRA-rated U.S. CMBS pulled back to 4.21%, fully offsetting November’s 19-bp increase. The total delinquent and specially serviced loan rate (the KBRA distress rate) also declined from November to 6.65%, a drop of 25 bps.

KBRA said the improved distress rate was broad-based, with five of seven sectors experiencing declines. The exceptions were multifamily and industrial, which increased for a second straight month.