The nation's commercial mortgage-backed securities market saw another uptick in distress to start the year, as special servicing rates climbed to 10.91% in January, according to Trepp. The monthly increase of 230 basis points marked the continuation of a gradual rise that began last summer, when the rate stood at 10.48% and was well above the 9.87% level recorded a year earlier.
Trepp attributed much of the increase to continued weakness in the office sector. Office loans in special servicing rose by 47 basis points in January to 17.11%, up from 16.64% in December. Although the rate remained below November's 17.16%, office distress has grown steadily over the past six months from 16.21% in July and 15.11% a year earlier.
Mixed-use properties followed with a special servicing rate of 13.67%, down slightly from 13.97% in December but higher than the 13.37% reported in November. Retail posted the third-highest rate at 11.76%, declining from 11.99% the previous month but above the 10.68% level recorded a year ago. Lodging came next at 9.37%, edging lower from 9.47% in December. Both multifamily and industrial remained comparatively stable at 8.14% and 8.08%, respectively.
In total, $2.3 billion in loans across 36 properties were newly transferred to special servicing in January, Trepp reported.
Office assets accounted for roughly $1.33 billion—or nearly 59%—of that volume. The largest transfer involved the $835 million loan on One New York Plaza, a 2.6 million-square-foot office tower in Lower Manhattan. The property was moved to special servicing due to an imminent maturity default on its balloon payment. While the loan had not previously been delinquent, it was designated as nonperforming with a debt service coverage ratio of 0.95 through the first three quarters of 2025 and an occupancy rate of 83%. Trepp noted that modification talks led to a planned maturity extension through January 2028.
The second-largest loan transferred was tied to Lakewood Center, a 2.74 million-square-foot super regional mall located about 20 miles south of Los Angeles. The $312.6 million loan—split into two notes of $241.3 million and $71.3 million—was transferred for an imminent maturity default. The property, owned by Pacific Retail Capital Partners, reported a debt service coverage ratio of 1.33 and 93% occupancy in the first quarter of 2025.
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