Chicago Is The Nation's Leader In Distressed CMBS Debt

Nearly a quarter of Chicago properties tied to a commercial mortgage-backed security are in some form of distress, the highest rate in the country by a wide margin, per a new report.

Roughly 23% of CMBS loans tied to Chicago buildings were considered either distressed or delinquent in August — about three times the average of 7.2% across the nation’s top 20 markets — according to an analysis by Kroll Bond Rating Agency released Sept. 11.

The city’s distressed rate surpassed second-place Denver (19.1%), Philadelphia (14.2%) and San Francisco (13.9%) and represented a near doubling of the 12.5% rate KBRA reported for Chicago last June.

KBRA analyzed about $600B in commercial real estate debt nationwide, finding that the level of overall distress has edged up from 4.5% in June 2022 to 6.8% in August. The New York-based credit rating agency attributed the national climb to the Federal Reserve’s 11 interest rate increases since March 2022, “its fastest rate hiking cycle over the past 35 years.”

But Chicago’s leap into the distressed building stratosphere represented more than just difficulty refinancing and was led by its heavy lodging and office exposure, study authors said, per Reuters. A few large loans were marked as delinquent or distressed last month, including a loan with a $400M-plus balance against the Aon Center, a $329M loan backing the Palmer House Hilton and a $388M loan on Prudential Plaza, Reuters reported.

“Commercial buildings, vital to Chicago’s economy, are in severe distress,” a coalition of business and CRE leaders led by Building Owners and Managers Association of Chicago Executive Director Farzin Parang wrote in an opinion piece for the Chicago Sun-Times this week opposing Mayor Brandon Johnson’s proposed real estate transfer tax.

“The post-pandemic era has seen less than half of workers returning to their offices, resulting in the highest vacancy rate in 75 years. With enough unoccupied downtown office space to fill 16 Willis Towers, experts project downtown office buildings could lose up to 50% of their value.”

KBRA’s analysis saw better news for seven major markets, which all posted distress rates under 2%. Those include Orlando, Florida; San Jose, California; Phoenix; Miami; Boston; and Seattle. San Diego’s rate was less than 1%.

When it came to distress by property type among major metros, New York came in first for retail, with 17% of CMBS-backed assets deemed to be troubled. Denver had the report’s highest rate of office distress at 40.2%, and Houston led the list of problem mixed-use projects at 75.5%. San Francisco topped all other large metros for distress in lodging (59.3%) and multifamily (22.7%).

Continue reading this story with a free account

Log in or register
Sign up for more articles like this
Subscribe to Bisnow's Chicago Newsletters
Related Stories

Howard Hughes Texas President Jim Carman To Step Down

High-Profile CBRE Chicago Exits Continue As 3 More Leave For Cushman & Wakefield

Chicago Office Tower Sells For $550M To Zara Founder In Blockbuster Deal

Tire Titan Acquires 2M SF Illinois Distribution Facility In Deal For Its Decadelong Home

JLL Taps Mark Gibson For Newly Created U.S. CEO Role

Wonderful Real Estate Inks Major Land Deals, Sells 1M SF Facility Near Bakersfield

Logistics Property Co. Acquires 716K SF Industrial Property: The Chicago Deal Sheet

JLL Nabs Brokerage Team With Over 75 Years Combined At Rival CBRE

From Precast To Conservation: Addressing Today's Stormwater Challenges

Pair Of Evanston Apartment Buildings Trade Hands, Including A Reinsdorf-Backed Sale

Ireland's AI Funding Boom Helps Drive Down Dublin Office Vacancy Rates

Scale Without Blind Spots: Why National Contractors Must Lead Locally