After a welcome reversal in January, the special servicing rate jumped 45 basis points in February, according to Trepp’s February 2025 Special Servicing Report.
The jump was due to a pair of inverse movements in a fraction. The special servicing balance, the numerator of the fraction ratio, increased, while the denominator of the overall loan balance decreased. Retail and office were the two property types that contributed most to the sector the increased; mixed-use reached a 12-year high rate for the first time since 2013.
The overall rate was 10.32%, a jump of 318 basis points from 12 months prior. The main drivers of the jump were office — 108 basis points above January to reach 16.19% — and retail, which was up 58 basis points from January to 11.26%. The two were above the previous 12-month values by 615 and 145 basis points, respectively.
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A dozen months ago, mixed-use special servicing was 8.40%; in February, it was 13.04%, a 33-basis-point jump over January. The year back, it was 7.14%.
As for other property types, Industrial was down four basis points from 0.65% in January. Lodging was 8.31% in February, 8.17% in January, and 6.87% a year back. Lodging was 8.31% in February, 8.17% in January, and 6.87% a year ago. Multifamily was at 2.22% 12 months back, 8.17% in January, and 8.31% in February.
The overall CMBS 2.0+ special servicing rate is 10.22%, up from 7.03% a year ago. For CMBS 1.0, the overall rate surged to 45.15%; a year ago it was 23.40%.
In February, $2.3 billion in new transfers to special servicing occurred. Office accounted for over three-quarters of the monthly increase at $1.8 billion. Of that, $1.3 billion was due to the largest transfer, the Willis Tower, over the imminent maturity default of the balloon payment. That’s 3.8 million square feet of Chicago office space, formerly the Sears Tower. There was a $1.8 billion appraised value at securitization in 2018. After the first three quarters of 2024, the debt service coverage ratio based on net cash flow (NCF) was 1.25x with 83% occupancy.
The second largest transfer, due to imminent maturity default, was the Altamonte Mall on a $137.8 million loan. The collateral is a 641,199-square-foot section of the 1.6 million-square-foot mall in an Orlando, Florida suburb. The DSCR, based on NCF, was 1.62x with 97% occupancy during the first three quarters of 2024. The borrower apparently wanted to extend maturity for several more years, although there is no indication whether that will be granted.
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