Delinquency Rate On Office CMBS Loans Surges Past 9% For First Time Since 2013

Another month, another big spike in the rate of problem office loans.

The delinquency rate on office loans in CMBS transactions rose to 9.4% in October, up from 8.4% in September, marking the highest level since 2013, according to Trepp.

The all-time high for office delinquencies was 10.3% in July 2012. A year ago, the office delinquency rate was less than 5.8%.

The main driver of the increase was a large office loan that had previously been current on payments but became 30 days delinquent in October.

While Trepp didn't disclose which loan was the main driver of the increase, the owners of the Worldwide Plaza office building in Manhattan fell behind on payments tied to $940M of CMBS debt last month. SL Green and RXR Realty, which co-own the building along with New York REIT Liquidating LLC, are trying to negotiate a modification and extension of the debt.

The office sector was the source of 60% of newly delinquent loan amounts in October. While all other primary CRE sectors — industrial, lodging, multifamily and retail — saw delinquency rates dip for the month, the office spike drove the overall U.S. CMBS delinquency rate to 6%, up from 5.7% in September, according to Trepp.

There was more than $3B in newly delinquent loans across property types, but more than $2B were paid off or brought current, leaving a $1B net increase in October. This month, the percentage of seriously delinquent loans, those delinquent over 60 days, stood at 5.6%.

Nearly 12% of office loans were in special servicing in September, the highest level since April 2013, and the overall ratio of CMBS loans in special servicing hit a three-year high.

With national office vacancy at an all-time high of 20.9%, according to Cushman & Wakefield, and banks less than willing to lend, office owners have been struggling to refinance their maturing loans, most of which were originated when interest rates were far lower.

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