CMBS Distress Rises Slightly in July – Trading Observer
“Commercial mortgage-backed securities (CMBS) lending showed an uptick in distress in July,” wrote Marc McDevitt, senior managing director at CRED iQ.
“Of the 50 largest Metropolitan Statistical Areas (MSAs) tracked by CRED iQ, there were 33 with month-over-month increases in the percentage of CRE loans in difficulty across the CMBS universe, a reversal of trends months when the majority of major markets saw back-to-back improvements in delinquencies. The magnitude of distress rates (delinquencies plus percentage of special service rate) was, however, relatively modest, with Baltimore MSA (1.38%) posting New Orleans (1.12%) was the only other market to show an increase in distress above 1% in July.
“Exploring defaults by property type, Kansas City, Mo.’s healthcare sector showed the largest increase in distress by market area with a change of more than 10.4% from to June 2022. The increase was led by a floating rate loan of $21.2 million. secured by The Atriumsa 207-unit assisted living facility, which defaulted on maturity on July 1, 2022 and was then transferred to special service.
“In addition, a $25 million loan, secured by two properties in Metairie, Louisiana – Independence Square and 3530 Boulevard Houma – became a 30-day offender in July and contributed to high increases in distress with the mixed-use and office sectors of New Orleans.
“Among the largest distress declines, the Baltimore mixed-use market sector exhibited the most significant change, which was driven by the resolution of the $67.8 million deal Gallery at Harborplace ready. The loan was not repaid when due in May 2022, when it contributed to a spike in distress for the Baltimore market. However, the loan appears to have been fully repaid during the July 2022 reporting period, mitigating the temporary increase in distress.
“On the retail side, a $22.6 million loan for The gateway forum the portfolio returned to master repairer in July, which corresponded to a decrease in distress for the Detroit and Jacksonville, Florida markets.
“The Minneapolis MSA had the highest overall distress rate at 20.9%, an increase from the previous month’s distress rate of 20.1%. Milwaukee (10%), Hartford, Connecticut (9 .2%), Cleveland (7.6%) and Chicago (5.7%) are the next four markets with the highest distress rates.
“Louisville, Ky., dropped out of the top five troubled markets last month after Chicago supplanted it. The Sacramento, Calif. market (0.1%) had the lowest distress percentage among the top 50 MSA for the fourth consecutive month The Jacksonville market (0.3%) positioned itself as the market with the second lowest percentage of distress.