CMBS Distress Rate Climbs to Record 11.8%

The CMBS market just hit a grim milestone: distress levels are higher than at any point in history.

The commercial mortgage-backed securities distress rate climbed to 11.8 percent in August, according to CRED iQ, setting a record after topping the previous 11.5 percent peak in January. 

The uptick marks the second consecutive monthly jump and the third increase in the past four months, underscoring mounting pressure in the securitized debt market as landlords struggle with maturities, occupancy and refinancing.

CRED iQ’s breakdown shows every key distress metric heading in the wrong direction. 

Delinquencies rose 78 basis points to 9.44 percent, while the special servicing rate hit 10.95 percent, up from 10.33 percent in July. Most troubling, the pile of loans past their maturity date ballooned to $38.8 billion, representing nearly two-thirds of the $61.1 billion pool the firm tracks. Roughly 41 percent of those are non-performing, a sharp climb from just a month earlier.

The data also points to weakening fundamentals. The share of current loans fell for a third straight month to 13.7 percent, while late but not yet delinquent loans now total $3.8 billion, which was a slight decrease from the previous month. 

In other words, the pipeline of future distress is filling quickly as owners work to clear existing defaults.

The report spotlighted one recent slip: a $61 million loan tied to the Estates at Palm Bay, a 300-unit multifamily property in Florida’s Panhandle. The interest-only loan went 30 days delinquent in August despite occupancy of 88 percent and a debt service coverage ratio above 1.4.

The CMBS market remains active, despite red flags hinting at increased distress. CMBS loans from private lenders declined in the second quarter, but a total of $59.55 billion in CMBS debt was issued in the first half of the year, a 35 percent year-over-year increase and the largest volume in more than 15 years, according to Trepp.

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