9 Out Of 10 Maturing Office CMBS Loans Defaulted In September

Some 88.9% of CMBS loans associated with office properties defaulted at their maturity in September, while 11.1% were paid off during the month and none were extended or modified, according to Moody's Analytics.

Defaulting office loans in September totaled $672M, with $83.7M of maturing loans paid off. September was by far the highest percentage and dollar total for office defaults in a single month this year, well above the previous high-water mark seen in April, when 51.1% of loans due defaulted, totaling $167.2M.

From the beginning of the year through Sept. 30, outcomes for maturing CMBS office loans have been more varied, with 34.1% defaulting, 34.7% being modified or extended, and 31.2% being paid off.

In the third quarter, 9.8% of maturing office loans were paid off.

Multifamily-linked CMBS payoffs dropped sharply in September, according to Moody's, with 71.7% of maturing loans paid off in the month. That follows three months of payoff rates for multifamily loans above 95%.

A significant number of the multifamily loans that failed to pay off in September were related to one sponsor, The Millennia Cos., Moody's reported.

“The company focuses on affordable housing and [Low-Income Housing Tax Credit] projects and all of the loans that failed to pay off were affordable senior housing projects that were recipients of LIHTCs,” Moody's reported. “This group of loans made up about 25% of the loans that failed to pay off.”

Millennia Cos. sent a statement to Bisnow Friday asserting the information provided by Moody's Analytics regarding Millennia is inaccurate.

“Millennia Companies had no CMBS loans,” the company said. “Out of a portfolio of 280 properties, six loans matured as of September 1; as such, it is a mischaracterization to refer to this as a large portfolio.

“Regarding the six properties, one is in the process of being sold, with the remaining five in the process of refinance closing. None of the Millennia Companies properties in maturity default are recipients of LIHTCs, as stated by Moody's. Additionally, there is no monetary default at this time.”

Another 20% of the multifamily loan balance that failed to pay off was tied to two student housing properties in Gainesville, Florida.

“Given that those two situations explain nearly half of the maturity defaults in September, we are less worried than when we initially saw the headline number,” Moody's said. “Less worried, but not carefree. We think there is reason to be cautious that stagnating rent and higher interest rates could finally be catching up to the sector. We aren’t quite ready to fully sound the alarm on multifamily, but we are tentatively reaching for the handle.”

UPDATE, OCT. 27, 5:30 P.M. ET: This story has been updated with comments from Millennia Cos.