CMBS loan loss volume rose in January, with $246.9 million across 14 loans resolved for $167.0 million in total losses and an average loss severity of 67.63%. Trepp reported this was a significant uptick in loan loss volume from December, when losses were just $71.8 million. It was the largest monthly loan loss total since last September, according to Trepp data.

The 12-month moving average monthly disposed balance decreased to $204.4 million in January, down from the $252.8 million a month prior. The 12-month moving average loss severity inched up to 62.65%, from the 62.38% recorded in December.

Although the overall disposed loan total was below the previous 12-month moving average, the average loss and average loss severity was above the previous moving average. Over the past 12 months, the highest monthly loss severity was recorded last April at 81.47%, while the lowest was 51.3% in July.

Pictured: Kitsap Mall in Silverdale, WA, the largest CMBS loan to be resolved at a loss in January.

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.

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.

The coronavirus pandemic created a work-from-home revolution that may lead to a decline in tax revenues from commercial properties, and cities will suffer as they cannot provide important services to residents, a new report warns.

If current trends persist, demand for commercial real estate space could drop by 12% to 25% in key cities, leading to a correlated drop in assessed values, and thus in city property tax revenue. The full effects haven’t yet been felt because federal funding from the American Rescue Plan has so far cushioned the blow, but city leaders should prepare.

That’s the takeaway from a new report titled “Impact of Work From Home on Commercial Property Values and the Property Tax in U.S. Cities,” commissioned by the Communications Workers of America.

The pandemic could result in empty workspaces.

The report was authored by researchers from the City University of New York and the University of Illinois at Chicago and released Thursday by the Institute on Taxation and Economic Policy.

“Though magnitudes vary somewhat across cities, all face significant fiscal risks,” the report says.

Researchers focused on eight cities — Atlanta, Austin, Charlotte, Chicago, Los Angeles, Miami, New York and San Francisco — where commercial real estate accounts for an average of 37% of property taxes, ranging from 26% in LA to 56% in Atlanta. A high proportion of white-collar jobs in these places can be performed out of offices and have a ripple effect on the economy.

Using data from the Bureau of Labor Statistics Quarterly Census of Employment and Wages, the researchers tracked employment changes in 2020 by city and industry. Even with no change in space per worker, employment effects alone will cause the value of commercial real estate to fall by an average of 6% — from 1% in Austin to 13% in San Francisco — they found. With two days or less of work-from-home, that number rises to 12%, and three or more days of work-from-home, it’s 25%.

The report found that New York and San Francisco are the most vulnerable of the eight cities, with predicted commercial price drops ranging from 25% to 43%.

“Declines are smaller, but still significant, in the other cities,” the report says. 

Using a special database on city finance, the researchers translated the decline in CRE property values into effects on property tax and city revenues. Larger cities with diversified revenue structures won’t feel as much impact, but smaller cities like Austin and Miami, which are more dependent on property tax, will have to adjust.

The analysis found that Atlanta will have the largest revenue effect, with an estimated 5.7% loss. Austin, New York and San Francisco face revenue losses between 2% and 4%.

Cities and states have gotten fiscal relief this year under the federal American Rescue Plan, but those funds will phase out between 2022 and 2024. The report’s authors say that one future solution may be to divert funds away from suburbs to city centers most affected — but warn that any reallocation is likely to draw “furious resistance” from jurisdictions that would be the perceived losers in any such shift.

The authors said there’s a “paradox” in cases like Florida and Texas. Political leaders tout low taxes and no income tax, but those states will soon see economic detriment in their major cities as they face negative impacts from the increase in working from home.

Some leaders have long predicted these problems. In Texas, lower taxes, light regulation and cheap housing lured 4.2 million people and hundreds of corporations in the past decade, but left little revenues for infrastructure improvements and social services — deficiencies that were evident during a winter storm and a massive power outage last winter.

“We are not sufficiently looking down the road. And we’re not sufficiently investing,” former Houston Mayor Annise Parker, who led the city from 2010 to 2016, told Bisnow in February.

“The bill will come due,” University of Houston Political Science professor Brandon Rottinghaus told Bisnow.