CMBS Issuance Surges Despite Record Delinquencies

The CMBS market is flashing paradoxes. Despite more than $23B of loans blowing past maturity with no payoff and record-high office delinquency rates, 2025 has brought the most new first-half CMBS issuances since the Global Financial Crisis.

This seems counterintuitive. But it actually reflects investors’ careful examination of commercial real estate assets seeking securitized financing, showing favor to pandemic-resilient properties, Trepp Senior Manager of Research Thomas Taylor said.

“The majority of issuance this year has been single-asset, single-borrower deals, which are primarily trophy properties, high-value. … You can call that, very simply, a flight to quality,” Taylor said. 

The commercial mortgage-backed securities market set a new post-GFC record with $58.8B in first-half issuances. SASB deals accounted for 74% of activity, and there were 13 issuances of $1B or more, Colliers reported.

Despite the office CMBS delinquency rate hitting an all-time high of nearly 11.7% in August, office loans are among the spike in deals. Investors are attracted to financing that they see as a safe bet, and many trophy office towers reach that threshold, Taylor said. Last year’s new loan for the Rockefeller Center campus in New York City shows this confidence — in October, it secured $3.5B of CMBS financing, the largest issuance ever for a single asset. 

The rising office delinquency rate is still a fallout from the pandemic, which suddenly made the majority of white-collar workers work from home and companies require less office space. As office loans come due, interest rates are higher and occupancy rates are lower, hindering landlords’ ability to refinance or pay off their loans. 

Major tenant exits have contributed to AAA bondholders taking losses for the first time since the GFC. L Brands occupied 77% of New York’s 1740 Broadway before announcing its exit plans in 2021. Investors in the AAA bond portion of the building’s $308M financing got less than three-quarters of their funds back when it sold last year.

Office CMBS delinquency rates are reaching record highs five years after the market shock of the pandemic, similar to how delinquencies peaked in July 2012, about five years after the subprime mortgage crisis, Trepp data shows.

But the CMBS system has responded differently to the latest paradigm shift, Taylor said.

“The system is working,” he said. “Because that should lead to some loans going bad, but it has not led to the entire system falling off a cliff like it did.” 

Post-GFC changes to CMBS financing, like regulations requiring risk retention for lenders, have kept the system functioning as it should, Taylor said. The overall delinquency rate in August was 7.29%, meaning borrowers of about $44B of CMBS financing have missed at least two payments.

That leaves more than 96% of CMBS loans in good standing.

The system changes are also reflected in new loans, Taylor said. CMBS issuances surged to $230B in 2007 before dropping below $3B in 2009. Despite the shock of the pandemic and interest rate spikes, CMBS issuances stayed relatively steady this cycle, hitting a low of $39B in 2023. 

Continuing on the first-half track would result in nearly $120B of issuances this year, still well below 2005 to 2007 levels, when lenders offered investment deals with no risk of their own.

“The lender has to maintain a piece of ownership of the bond so that if it goes bad, then they lose too,” Taylor said. “Before that, there was little, if any, risk retention. Disclosures were not as strong, and generally speaking, the people who are writing the loans could get away with more.” 

But the current system has allowed space for a new phenomenon: $23B worth of CMBS loans are stuck in limbo, at or past their maturity dates with borrowers unable or unwilling to pay off the debt. Unresolved loans make up 75% of delinquent loans tied to CMBS, up from 42% three years ago. 

Many lenders are reluctant to take keys to the properties serving as collateral, preferring instead to extend loan maturities while getting contributions from borrowers, Taylor said.

It is too soon to know exactly what will come next for the loans gripped by paralysis. 

CMBS loans that don't resolve as planned usually take a minimum of 18 months to work out, according to Trepp. 

“It's not like everyone is just sitting around twiddling their thumbs, waiting for interest rates to come down,” Taylor said. “Some probably are, but a lot of them are trying to find creative solutions to resolve those loans. It just takes time.”