Another $2B Of Office Loans Hit Special Servicing As Rate Of Distress Mounts
Interest rates might be coming down, but distress in commercial real estate is still on the rise.
The CMBS special servicing rate — the percentage of securitized CRE loans that are in the hands of a special servicer, usually because of doubts about the borrowers' ability to repay the debt on time — hit 8.8% in September, up a full two percentage points from last year, according to the CMBS research firm Trepp.
In total, roughly $3.3B of CMBS loans were transferred to special servicing during the month of September, $1.9B of which were office loans. Now 12.6% of all CMBS office loans are being specially serviced, up from 8.3% at this point last year.
The special servicing rate increased for all five major property types. Retail and hotel loan servicing rates are now at two-year highs at 11.2% and 7.8%, respectively. More than 6% of multifamily CMBS loans are in special servicing, the highest rate in more than nine years. The multifamily special servicing rate was 2.4% six months ago.
The biggest loan to be placed in the hands of a special servicer during the month was the $525M loan for the Mobil Building at 150 East 42nd St. in New York City.
Real estate investors David Werner and Mark Karasick purchased the leasehold for the 42-story tower in 2014 for more than $900M, in part by financing it with the CMBS loan. They failed to pay off the debt when it matured in August, Bisnow previously reported. The tower’s 462K SF anchor tenant, Wells Fargo, plans to vacate the property in 2026 in a move to 20 Hudson Yards, Trepp reported.
Despite the recent Fed interest rate cut of 50 basis points and a swell of commercial real estate optimism that followed, experts say commercial loans face a reckoning as a $1.5T wall of maturities nears and interest rates remain elevated above the historically low levels when maturing loans were originated.
The second largest loan to transfer to special servicing in September was Ashford Hospitality Trust's $409.8M CMBS loan on a portfolio of 17 extended-stay and limited-service U.S. hotels. The debt was transferred because of "imminent maturity default," according to servicer commentary — the loan's final extension option runs until November.
