Property loans that went into default at the start of the pandemic but managed to recover are experiencing a second round of defaults amid a slow-to-recover office leasing market.

At least 13 commercial mortgage-backed loans that were more than 60 days behind payments in August 2020, but then recovered, began missing their repayments between October 2021 and March of this year, according to Moody’s Analytics research first reported by Bloomberg.

A total of 7.89% of CMBS loans were marked as “troubled” in March, according to Moody's, a slight increase over February.

Moody's found the repayment challenges on retail and office properties are being caused by the fact that it is still hard to find tenants to fill space. As uncertainty hangs over the leasing market, the delinquency rate could be set to grow — although if hospitality demand improves that may offset the challenges in other sectors.

“There are a core group of loans that have lost tenancy that are struggling to recover,” said Moody’s Analytics researchers led by Darrell Wheeler. “This observation comes from reviewing the underlying troubled loans and finding that many loans had lease expiry challenges before March of 2020. In some cases, Covid may have hindered their leasing recoveries, as many appear to still have lower cash flows and uncertain recovery paths.”

A handful of once-delinquent hotels have also stopped making payments, according to Moody's, but those don't share a common trend, as each is facing individual problems and issues.

The report pointed to 1740 Broadway in New York City, where Blackstone turned over the keys to the property to the special servicer on its $308M CMBS loan, as an example of long-term challenges in the market.

“To prepare the borrower undertook substantial improvements to increase the property’s appeal, but now the COVID affected market has left the borrower with a very low occupancy and facing a potential near-term default,” researchers wrote.

There is still some cause for optimism, as 70 CMBS loans that were in trouble during the pandemic are, in the last six months, again meeting their obligations.

Office leasing has been hit hard in major markets like New York City, as companies consider how workplaces will balance remote work and physical offices going forward.

In fact, in the last month, owners of Class-B office properties in Chicago and New York have handed the keys to their buildings over to their lenders, much as owners of Class-B malls have elected to do in recent years. In Manhattan, office availability rose to 19%, a new high, in the first quarter of the year.