US commercial mortgage distress rises in November on office woes

LATE payments on US commercial property loans rose in November, driven by growing distress among office properties, according to a new report by Kroll Bond Rating Agency (KBRA).

The delinquency rate on US commercial mortgage-backed securities (CMBS) reached 4.4 per cent in November, climbing 19 basis points (bps) from October’s 4.21 per cent, according to a Tuesday (Nov 28) report by KBRA.

The trend is a reminder of the continued challenges facing property owners, which have struggled to keep up with interest payments and refinance their loans in an elevated rate environment.

While loan distress on other property types such as retail and lodging have declined, those backed by offices climbed 116 bps to 8.84 per cent in November.

In its analysis of over US$315 billion in CMBS, KBRA recorded 26 office loans this month that either became delinquent or faced default.

Analysts and market participants have attributed much of offices’ woes to the persistent post-pandemic remote working trend, which has led companies to avoid renewing their leases.

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Among the largest office loans in November facing default was RXR Realty’s US$670 million loan on the Helmsley Building, a skyscraper located at 230 Park Avenue in New York City.

Office distress has accounted for roughly three-quarters, or US$1.6 billion, of US$2.1 billion in total newly distressed CMBS loans this month.

Meanwhile, loan distress among retail and lodging properties declined for the sixth and fourth straight month respectively. REUTERS