The commercial mortgage-backed securities (CMBS) market has reached its highest distress rate on record, according to new data from CRED iQ. In August, the CMBS distress rate climbed to 11.8 percent, surpassing the previous peak of 11.5 percent set in January.
This marks the second consecutive monthly increase and the third rise in four months, reflecting ongoing challenges for landlords facing loan maturities, occupancy issues, and refinancing difficulties.
CRED iQ’s report shows that all major distress indicators have worsened. Delinquencies increased by 78 basis points to reach 9.44 percent. The special servicing rate also rose, hitting 10.95 percent compared to 10.33 percent in July. Loans past their maturity date grew significantly to $38.8 billion—nearly two-thirds of the $61.1 billion pool tracked by CRED iQ—with about 41 percent of those loans classified as non-performing, a notable jump from the prior month.
The share of current loans declined for a third straight month to 13.7 percent, while late but not yet delinquent loans totaled $3.8 billion—a slight decrease from July.
“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,” according to CRED iQ’s analysis.
A recent example highlighted in the report is a $61 million loan tied to Estates at Palm Bay, a multifamily property with 300 units located in Florida’s Panhandle. Despite an occupancy rate of 88 percent and a debt service coverage ratio above 1.4, this interest-only loan became delinquent by 30 days in August.
Despite these signs of stress, activity remains strong in the CMBS market overall. Issuance of CMBS debt reached $59.55 billion during the first half of this year—a figure representing a 35 percent increase over last year and marking the largest volume seen in more than fifteen years, based on data from Trepp (https://www.trepp.com/).
The findings indicate that future distress could continue rising as property owners work through existing defaults and attempt to manage upcoming financial obligations.
