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.

After a 60% drop in effectuated appraisal reduction amounts (ARAs) on CMBS loans in 2022, ARAs climbed in 2023 and 2024 as delinquencies increased 84%, Kroll Bond Rating Agency reported. ARAs totaling $1 billion (98 loans) were effectuated during full-year 2023, while the year-to-date June 2024 total almost matched this figure, with $842.6 million of new ARAs across 95 loans.

As of June 2024, ARAs totaling $5 billion are in effect across 355 loans with a total outstanding principal balance of $11.8 billion. This compares to June 2023 when ARAs totaled $4.2 billion for an annual growth rate of 20%.

“With lower conduit CMBS coupon loans maturing in an environment with higher interest rates, declining property prices, and weak commercial real estate deal volume, delinquencies and ARAs are expected to continue to rise,” reported KBRA. “The combination of increasing delinquencies and the potential assignment of ARAs to existing delinquent loans could significantly amplify ARAs in 2024 and 2025.”

Looking at potential reductions ahead, KBRA noted that nearly one-third of seriously delinquent loans by loan balance do not have ARAs. However, based on the current pace of ARA activity and the trajectory of CMBS 2.0 delinquencies, new ARAs are on track to surpass and potentially double 2023 levels. “The rapid rise in ARAs indicates an increase in expected losses that will follow.”

Fitch Ratings said its overall U.S. CMBS delinquency rate increased nine basis points to 2.42% in May from 2.33% in April 2024 due to maturity defaults of several large regional mall and office loans. Led by the $255-million maturity default of a loan backed by a 980,711-square-foot portion of Providence Place Mall (pictured) in Providence, RI, the retail and office delinquency rates increased by 32 bps and 26 bps, respectively, last month. 
 
New 60-day-plus delinquency volume totaled $1.32 billion in May compared with $1.49 billion in April, Fitch said. Office loans accounted for the largest share of new delinquencies (44%; $588 million), followed by retail (41%, $536 million) and hotel (11%, $139 million). Maturity defaults accounted for 77% ($1.02 billion) of new delinquencies, while term defaults represented 23% ($305 million). 
 
Resolution volume increased to $771 million in May from $569 million in April, according to Fitch. May resolutions included $616 million of loans brought current, $24 million of loan liquidations and $131 million of loans previously 60+ days delinquent removed from Fitch’s index that are now 30 days delinquent.  

Using a different yardstick from Fitch, Trepp reported that the CMBS delinquency declined by 10 bps to reach 4.97% as May ended. The improvement was driven by about $2 billion of office loan resolutions during the month. Year-over-year, though, delinquencies in May were higher compared to 3.23% in May 2023, according to Trepp data.

Office and retail CMBS loan defaults drove the overall default rate higher in 2023, Fitch Ratings said Tuesday. The total annual and cumulative U.S. CMBS loan default rates for 2023 increased to 0.9% and 18.5%, respectively, from 0.3% and 17.9% in 2022, due to increased maturity and term defaults primarily in office and retail, which continued to comprise the largest shares of overall default volume. Reduced CMBS issuance was also a factor.

Office default volume increased the most in 2023, to $4.8 billion (55.9% of 2023 default volume) from $1.6 billion (49.4%) in 2022. Most of the office defaults were at maturity in 2023 (60.4%; $2.9 billion), generally in line with 2022 (69.5%, $1.1 billion). Retail default volume in 2023 also increased to $2.55 billion (29.7%) from $1.1 billion (34.3%) in 2022, driven by a high concentration of regional mall defaults.

Although the office and retail sectors experienced substantially more defaults in 2023, the increases in the hotel, industrial and multifamily sectors were more modest, Fitch said. The three sectors combined accounted for less than 10% of overall defaults in 2023, down from 15% in 2022.

Pictured: The Gas Company Tower in Downtown Los Angeles. A Brookfield fund defaulted on $465 million of debt tied to the property in 2023.