A sharp spike in the rate of commercial mortgage-backed securities loans entering special servicing signals growing distress in the sector, Trepp reveals in its latest report. It has been found that the special servicing rate climbed to 10.57% in June, marking its highest level since May 2013 and capping a relentless three-month streak of increases.
The upward trajectory represents an almost 225-basis-point jump over the past year, as worsening property performance and maturing loan risk continue to strain the market.
The volume of loans in special servicing ballooned by $750 million in the last month alone. All the while, the overall CMBS loan balance outstanding contracted by $8.2 billion, underscoring the dual pressures of increasing distress and declining origination activity, Trepp reports. Retrospective data shows how rapidly the landscape is shifting: the special servicing rate stood at just 8.23% a year ago, rose to 9.89% six months prior, then marched upward through 10.11% three months ago, 10.17% in April and 10.30% in May.
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Office loans remain at the epicenter of the stress. Trepp notes the office sector’s special servicing rate hit 16.38%, a steep climb from 10.79% a year earlier, 14.9% six months ago, and 15.76% just last month. Mixed-use properties followed as the next most distressed asset class, posting a 12.05% special servicing rate. This sector even saw a modest month-over-month improvement of 26 basis points, easing from 12.31% in May. Still, the June rate reflects an entrenched trend, having stood at only 9.34% the previous year.
Retail registered the third-highest distress, with a special servicing rate of 11.93%, up from 10.82% in June 2024. Lodging properties continued their climb to 10.11% in June, up from 7.28% last year, while multifamily property loans reached 8.18%. Notably, multifamily was one of the only segments to show an improvement versus May, declining by 24 basis points over the month.
June witnessed $2.9 billion in new loan transfers to special servicing, Trepp calculates. Office properties again dominated these transfers, representing $1.7 billion—57% of the total. Lodging followed at $712 million (24%), with retail capturing $361 million, or 12% of the monthly figure.
Among the new entries, the two largest loans to land in special servicing highlight the mounting risks for both lenders and property owners, Trepp finds. The Ashford Highland Portfolio, a $590.3 million lodging loan, entered servicing due to imminent monetary default. The loan, originally maturing in April 2020 and extended to July 2025, covers 22 hotels nationwide, with properties dating as far back as 1925 and all renovated in the 2010s. The portfolio was appraised at $1.2 billion in 2018, and by March 2025, its debt service coverage ratio stood at 1.41x on only 56% occupancy.
Similarly, the $415.3 million 1440 Broad loan was transferred due to a balloon payment and maturity default, remaining under forbearance through October 2025, according to Trepp. The sprawling 740,387-square-foot mixed-use asset, prominently located on New York’s 41st Street and Broadway, counted WeWork as its largest tenant at securitization, occupying more than 40% of the leasable space. Financials from the first half of 2024 showed a debt service coverage ratio of just 0.15x and a 59% occupancy rate.
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