CMBS Loan Losses Climb Sharply As Loss Severity Hits New High

In March 2025, commercial mortgage-backed securities (CMBS) experienced a significant uptick in loan losses, with total losses reaching $128 million across six loans. This marks a sharp increase from February’s $79.7 million across seven loans. The average loss severity—the percentage of the loan balance not recovered—rose to 81.27%, up from 47.87% the previous month. (CMBS Loan Loss Report: Volume of Losses Increases in September 2024)

Over the past 12 months, there have been 188 disposed loans totaling $2.05 billion, incurring losses of $1.29 billion, resulting in an average loss severity of 62.97%. When considering only loans with a loss severity greater than 2%, the 12-month figures include 108 loans totaling $1.96 billion, with losses of $1.29 billion and a higher average loss severity of 65.79%.

Despite the increase in monthly losses, the 12-month moving average disposed balance decreased to $171.1 million in March from $193.3 million in February. However, the 12-month moving average loss severity continued to rise, reaching 62.97% in March from 61.96% in February. (CMBS Loan Losses Were Down in October | ORION INVESTMENT REAL ESTATE)

These developments indicate a concerning trend in the CMBS market, with rising loss severities suggesting that investors are facing more significant write-downs on defaulted loans. This situation may reflect broader challenges in the commercial real estate sector, including issues such as declining property values and increased vacancies. (CMBS Loan Loss Report: Volume of Losses Increases in September 2024)

 

Source:  GlobeSt.