Commercial mortgage-backed securities are experiencing modest improvement. The balance of loans fell nearly $14 billion, to $583 billion in August from $597.0 billion in July, according to Trepp. While the decline offers some encouragement, industry observers noted that stress remains elevated across several property types.
Across all property sectors, the special servicing rate fell to 10.29% in August, down from 10.48% in July and 10.57% in June. That compares to 10.30% in May, 10.32% in February and 8.46% a year earlier.
Industrial properties continue to stand apart with the lowest distress levels in the CMBS universe. The sector’s special servicing rate was just 0.61% in August, essentially flat compared with recent months and slightly above the 0.39% rate recorded a year earlier. Lodging posted an improvement, with the rate dropping to 9.10% in August from 10.01% in July. That figure had been as high as 10.11% in June but compares favorably with the 7.42% rate seen in August 2024.
Multifamily loans have inched higher over the past year. The August rate was 8.61%, up from 8.37% in July and well above the 5.71% reported at the same time last year. Office, meanwhile, remains the most troubled sector. The rate climbed to 16.90% in August, its highest level to date, compared with 16.21% in July, 16.38% in June and just 11.91% a year earlier.
Mixed-use loans showed some relief, falling to 10.64% in August after peaking at 13.04% in February. Retail held largely steady, coming in at 11.49% in August, compared with 11.66% in July and 10.92% a year earlier.
Trepp noted that the biggest changes came in lodging, mixed-use and office. Lodging and mixed-use recorded rate improvements, while office distress worsened by 70 basis points to a new high.
Despite the aggregate decline in special servicing balances, August saw a substantial flow of properties into distress. Roughly $2.4 billion of new loans were transferred to special servicing during the month, with 90% concentrated in the office and retail sectors. Office accounted for $1.3 billion, or 55% of the total, while retail represented $824 million, or 35%. No other sector had new transfers above $100 million.
Two large loans stood out. The $545.8 million HBS portfolio loan, backed by 24 Lord & Taylor locations and 10 Saks Fifth Avenue stores totaling more than 4.5 million square feet, was transferred to special servicing for “imminent monetary default.” The debt, currently performing, has matured, but the borrower has lined up takeout financing to pay it off, according to the servicer.
The other major transfer was the $463 million 5 Bryant Park loan, secured by a 685,000-square-foot Manhattan office building constructed in 1958 and renovated in 2014. The loan was transferred due to a balloon maturity default. The servicer said it is in talks with the borrower regarding refinancing options, cash management and a tax escrow. Grubhub leases 11.4% of the space through 2029.
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