The Trepp CMBS Special Servicing Rate rose 45 basis points in February 2025 to 10.32%. The increase followed the rate’s slight decline in January, which represented its first drop in more than a year.

Trepp cited two factors behind February’s sizable increase in the overall rate. First, the net balance of loans in special servicing increased by $1.8 billion, and second, the overall balance of loans outstanding fell by $8.8 billion.  “Thus, a comparatively larger numerator divided by a comparatively smaller denominator led to the substantial jump in the monthly rate,” wrote Trepp’s Vivek Denkanikotte.

Two property types contributed most heavily to the increase in the overall rate. The retail rate climbed 59 bps to 11.26% following a 100-bp drop the month prior. And the office rate rose 108 bps to 16.19%, marking yet another 25-year high.

Additionally, the mixed-use rate rose 33 bps to 13.04%, clearing the 13% mark for the first time since early 2013. Otherwise, none of the remaining property types changed by more than 15 bps in either direction, according to Trepp.

Trepp reported an increase in CMBS loan losses for September, when $252.5 million across 15 loans were resolved with $139.5 million in losses total, carrying an average loss severity of 55.26% for the month. That compared to $47.2 million of loan losses in August.

The 12-month average disposed balance moved to $266.3 million, down from the $277.7 million that was seen last month, while the 12-month moving average loss severity stood at 63.54% in September, slightly up from the 63.28% seen in the prior month.

The average loss severity for loans resolved in September with losses greater than 2% increased to 58.75%, up from 55.20% in August, according to Trepp. The running average loss severity for losses greater than 2% for the last 12 months was 65.97%, up slightly from the 12-month moving average in August.

Cap rates in the net lease sector continued to rise in the third quarter of 2024, albeit slightly, net lease brokerage The Boulder Group reported. The overall rise was three basis points quarter-over-quarter, with the average cap rate coming in at 6.73% in Q3.

All property types saw an uptick in cap rates, according to the Q3 report from The Boulder Group. Office sector net lease properties experienced the largest increase, at eight bps, with industrial up five basis points. Retail edged up three bps in Q3.

The onset of rising cap rates coincided with the Federal Reserve’s series of increases to the federal funds rate. “Additionally, there is a stagnant supply of net lease properties on the market resulting from limited transaction activity from both private and institutional buyers,” said Boulder Group president Randy Blankstein.

Current sellers of net lease properties hope the recent 50-bp cut in the federal funds rate will increase transaction velocity and potentially improve pricing in their favor. However, most market participants remain cautious and don’t expect cap rates to compress near-term unless there are continued rate cuts.

Driven by the retail sector, the Trepp CMBS Delinquency Rate continued its uphill climb in September 2024, rising 26 basis points to 5.70%. Although most of the major property types contributed to the rise in the overall rate, retail contributed to about 50% of the net change in the total delinquent loan amount.

The retail delinquency rate rose 86 bps in September to 7.07%, Trepp reported. The last time the retail delinquency rate was above 7.0% was April 2022. A large single-asset, single-borrower deal that previously was current on payments but now registers as a nonperforming matured balloon was one of many large retail loans to turn delinquent in September.

Office accounted for 37% of the $2-billion net increase in the overall dollar amount of delinquent loans in September, with the office delinquency rate increasing 39 bps to 8.36%. Multifamily’s month-over-month increase was smaller at three bps to 3.33%, while industrial CMBS delinquencies declined 18 bps to a rate of 0.32% for the month.

U.S. banks reported a 20% sequential increase in total high-volatility commercial real estate (HVCRE) loans in the second quarter of 2024 following a four-year low balance in Q1, according to S&P Global Market Intelligence. The aggregate HVCRE loan balance for US banks stood at $34.93 billion during the quarter, up from $29.11 billion in Q1 but down 5.2% from $36.83 billion a year ago 

HVCRE loans in the second quarter accounted for 0.24% of the sector’s total risk-weighted assets, up four basis points from a quarter earlier. 

Dublin, GA-based Morris Bank reported the highest ratio of HVCRE loans to risk-weighted assets among top-tier US banks with at least $1 billion in total assets. The Morris State Bancshares Inc. subsidiary reported $265.3 million in total HVCRE loans during the quarter, or 19.9% of its risk-weighted assets, S&P Global said. 

With $2.09 billion in total HVCRE loans as of June 30, Goldman Sachs retained its position as the top HVCRE lender for the third consecutive quarter. The total loan balance represented a 1.0% quarter-over-quarter increase and accounted for 0.3% of the company’s risk-weighted assets. 

Regulators define high-volatility commercial real estate ADC loans as credit facilities that primarily finance or refinance acquisition, developments or constructions of real properties. They’re used to provide financing to acquire, develop or improve properties into income-producing ones that are dependent on future income, sales or refinancing for repayments. 

The distressed property market is just beginning to unfold, with significant challenges still ahead. On October 22, hear experts from Trimont, Greystone, Transwestern and more discuss the rising tide of distressed assets, upcoming CMBS maturities, and stricter underwriting practices. Gain insights into what lies ahead as we transition into 2025 at Connect Distressed Investment & Finance at the Luxe on Sunset in LA.

Amid an overall four-basis-point decline in CRED iQ’s distress rate, multifamily posted an 80-bp increase in February, the analytics firm reported. It was the largest monthly increase in that sector in more than 18 months. 

As an example of issues that CRED iQ is tracking within the apartment sector, the firm cited a $94.1-million loan backed by The Reserve at Brandon, a 982-unit multifamily property in the Tampa suburb of Brandon, FL. The loan fell 30 days delinquent in February.   

“The loan’s rate cap expiration date was in April 2024, along with its initial maturity date,” according to CRED iQ. “There were three 12-month extension options at securitization. The loan was added to the watchlist in May 2023 due to low occupancy and DSCR – mostly recently reported in September at 82.3% and 0.41, respectively.  

“At underwriting, the as-is appraisal for the multifamily community was $232.5M ($263,762/unit) with an as-stabilized value of $312.6 million, with stabilization anticipated for March 2025. Servicer commentary indicates there are discussions of extending the April 2024 maturity date.” 

CRED iQ attributed February’s decrease in the overall distress rate primarily to a $2.1-billion loan backed by a self-storage portfolio becoming current after being delinquent the previous month. Office continues to see the highest distress rate at 11.0%. 

Pictured: The Reserve at Brandon. Photo courtesy of Cushman & Wakefield.

The Trepp CMBS Delinquency rate inched up in February, rising five basis points overall to 4.71%. Year over year, the overall U.S. CMBS delinquency rate is up 159 bps.

In the closely watched office segment, delinquencies rose 33 bps in February to 6.63%. The month-over-month increase is roughly in line with the average 37-bp monthly gain for the sector over the past 12 months, according to Trepp.

The retail segment posted the largest decline of all property sectors for the month, dropping 24 bps to 6.03%. That said, retail CMBS still represents the second-highest delinquency rate, compared to 5.45% for lodging, 1.81% for multifamily and 0.43% for industrial.

If loans that are beyond their maturity date but current on interest were included, the delinquency rate would be 5.69%, up seven bps from January. The percentage of loans that are 30 days delinquent is 0.30%, up six bps for the month.

Trepp said the all-time high for the CMBS delinquency rate was 10.34%, registered in July 2012. The COVID-19 high was 10.32% in June 2020.

January saw $834.0 million in CMBS loans resolved at a loss, with $382.3 million in losses total, carrying an average loss severity of 45.84% for the month, reported Trepp. This was an increase in loan loss volume from December 2023, where losses totaled $132.9 million, although December’s loss severity was greater.

The 12-month average disposed balance moved to $247.6 million in January, compared to the $193.4 million that was seen in December, while the 12-month moving average loss severity stood at 52.66% in January, slightly down from the 54.20% seen in the prior month.

Trepp reported the largest loan to resolve at a loss in January was the $447.6-million Veritas Multifamily Portfolio Pool loan. The loan is collateralized by more than 60 multifamily properties in the San Francisco area. The bulk of the properties were constructed in the early 1900s, although one was built in 1890 and another as late as 1976.

In all, just under $3 billion of CMBS loans have been resolved at a loss over the past 12 months with a total of $1.56 billion in losses, according to Trepp.

Single-tenant net lease cap rates increased in the fourth quarter of 2023 for the seventh consecutive quarter to 6.58%, a seven-basis point increase compared to Q3, The Boulder Group reported. By sector, the increases were eight bps to 6.35% for retail, 14 bps to 7.55% for office and four bps to 7.00% for industrial.

“Cap rates continued to rise in the fourth quarter as asset pricing has not caught up to the massive increase in borrowing costs over the past year,” said Randy Blankstein, president, The Boulder Group. “A lack of 1031 buyers is also causing property supply to increase in a meaningful way.”

The disparity in the spread between the median asking and closed cap rate increased across all asset types from the previous quarter. This was especially apparent in the office sector, where the cap rate spread increased by 12 bps in Q4 to 67 bps. Simultaneously, the number of properties on the market in Q4 grew by 11.6% overall and by 12.7% for the retail sector when compared to Q3.