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CMBS Special Servicing Rate Surges To Highest Level In Over A Decade

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Commercial real estate distress is accelerating, with the latest data from Trepp showing that the special servicing rate for commercial mortgage-backed securities (CMBS) soared to 10.57% in June 2025—the highest level since May 2013. This marks the third consecutive monthly increase and reflects mounting pressure from declining property performance and the growing number of maturing loans.

Over the past year, the special servicing rate has jumped by nearly 225 basis points, climbing from 8.23% to 10.57%. In just the past month, $750 million in loans were newly transferred to special servicing. Meanwhile, the overall balance of outstanding CMBS loans shrank by $8.2 billion, a signal of both falling loan origination and increasing financial strain.

Office Sector Remains Ground Zero for Distress

Office properties continue to bear the brunt of market instability. Trepp reports the office special servicing rate reached 16.38% in June, up sharply from 10.79% a year ago. Despite only a slight increase over the past month, office loans still accounted for $1.7 billion—57% of all new transfers to special servicing.

Mixed-Use, Retail, and Lodging Also Face Growing Challenges

Mixed-use assets had the second-highest distress rate at 12.05%, a slight improvement from May but still significantly higher than the 9.34% recorded in June 2024. Retail properties followed with an 11.93% special servicing rate, up from 10.82% a year prior. Lodging loan distress climbed to 10.11%, a jump from 7.28% last June.

Multifamily properties fared somewhat better. While their special servicing rate reached 8.18%, the sector was one of the few to show month-over-month improvement, dropping by 24 basis points.

Notable Loans Entering Special Servicing

Two high-profile loans illustrate the growing risks in the sector:

  • Ashford Highland Portfolio: This $590.3 million loan backed by 22 hotels across the U.S. was transferred to special servicing due to an impending monetary default. Despite a 2018 valuation of $1.2 billion, occupancy had dropped to 56% by early 2025, with a debt service coverage ratio of 1.41x.
  • 1440 Broadway, NYC: A $415.3 million mixed-use loan secured by a 740,000+ SF property on 41st Street and Broadway is also in special servicing after a maturity default. Formerly anchored by WeWork, the building had just 59% occupancy and a concerning debt service coverage ratio of 0.15x as of mid-2024.

Outlook: Rising Risk Across the Board

The sustained rise in special servicing rates is a clear indicator of systemic stress across commercial real estate sectors, particularly for office, mixed-use, and lodging. With nearly $3 billion in new loans entering special servicing in June alone and loan maturities looming, the second half of 2025 may bring more volatility unless market fundamentals begin to stabilize.

For lenders, investors, and borrowers alike, these trends underscore the need for proactive asset management and renewed focus on risk mitigation strategies.

 

Source:  GlobeSt.

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Tracking the Pulse of CRE: New CMBS Data Reveals Shifting Market Metrics

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In the world of commercial real estate, few things draw more scrutiny than changes in underwriting metrics—and the latest snapshot from CRED iQ offers a compelling look at how cap rates, interest rates, and debt yields are evolving across major property sectors.

While the analysis is based on a limited set of the most recent ten CMBS (commercial mortgage-backed securities) transactions—a relatively small sample—the insights are still meaningful, especially in a market where timely, detailed data can be hard to come by.

Cap Rates: Wide Swings, Subtle Shifts

Office properties saw the broadest variation in cap rates, with a spread of 632 basis points ranging from 4.31% to 10.63%. The average rate dipped slightly to 7.34%, down from 7.44% earlier this year, suggesting a modest softening in the sector.

Multifamily assets weren’t far behind in volatility, with cap rates ranging from 2.65% to 8.61% and an average of 5.74%, reflecting a decrease from 6.38%. Retail properties showed a narrower but still notable range between 5.13% and 9.19%, averaging 6.28%, down 41 basis points from February.

Industrial cap rates ranged from 3.67% to 7.50% and averaged 5.74%, while self-storage properties had an average of 5.81%, down from 6.22%. Hospitality was the only sector where the average cap rate increased, rising to 7.95% from 7.31%.

Interest Rates: Hospitality Leads in Volatility

Hospitality assets also showed the widest interest rate range—305 basis points—spanning from 5.54% to 8.59%. The sector’s average interest rate climbed to 7.30%. Office deals saw a range of 5.49% to 8.05%, with an average slightly lower at 6.61%.

Multifamily properties averaged 6.50% in interest rates, down marginally from 6.58%, while industrial rates moved higher to an average of 6.81%. Self-storage saw a small drop, averaging 6.47% compared to 6.65% earlier in the year.

Debt Yields: Notable Increases in Multifamily and Office

Debt yields showed some of the most dramatic shifts, especially in the multifamily sector, where the average jumped from 9.50% to 12.9%, with a range stretching from 7.5% to a striking 45.1%. Office debt yields ranged from 10.2% to 36.2%, averaging 13.9%, up from 13%. Retail averaged 12%, slightly higher than February’s 11.6%. Figures for industrial and self-storage were not available in this dataset.

Takeaway

These shifts—both large and small—underscore the complexity and volatility of today’s commercial real estate environment. While the sample size is limited, the data provides a useful lens into how market pressures are impacting underwriting decisions in CMBS deals. For investors, lenders, and analysts alike, keeping a close eye on these metrics is essential as the landscape continues to evolve.

 

Source:  GlobeSt.

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Loan Modifications Nearly Double As Extend & Pretend Tactics Surge

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Loan modifications—often labeled “extend-and-pretend” strategies for obvious reasons—have become a regular tool in the commercial real estate (CRE) sector. And according to a new analysis from CRED iQ, their use has increased sharply.

CRED iQ reviewed trends in modifications across various loan types, including CMBS, SBLL, CRE CLO, and Freddie Mac loans. The analysis, which looked at both recent trends and data over the past three years, found a significant uptick in these modifications.

Between March 2024 and March 2025, the volume of modified loans nearly doubled, jumping from $21.1 billion to $39.3 billion—an 86.3% increase. Just last month, $2 billion worth of modifications were made across 47 loans, marking the highest activity since May 2024.

It’s important to note that the data doesn’t cover commercial bank CRE loans, which are a major portion of the overall market. Even so, the figures provide insight into growing reliance on loan extensions. Modification sizes have ranged from as little as $11.3 million in July 2022 to as much as $2.4 billion in July 2023.

Many of these extensions stem from loans initially extended in 2024, now creating a wave of upcoming maturities. Expectations that Federal Reserve rate cuts might ease refinancing pressures have largely faded, leaving borrowers to manage rising debt costs on their own. In this environment, banks are eager to avoid labeling loans as troubled, so modifications are often the preferred route.

One example CRED iQ highlighted is Chicago’s Willis Tower. The 3.8 million-square-foot building had a $1.33 billion interest-only loan originally due in March 2022. After multiple one-year extension options, a recent modification extended the due date further—this time to March 2028. Despite this, the tower is performing decently, with an 83.1% occupancy rate and a debt service coverage ratio of 1.32.

So what does all this mean in a market without the relief of lower interest rates? CRED iQ suggests these trends reflect a broader change in CRE financing. The nearly $40 billion in modified loans is a signal of both caution and adaptability in the sector.

“The commercial real estate sector is at a turning point,” CRED iQ said, with the implications for investors and lenders still unfolding.

 

Source:  GlobeSt.

 

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Lenders Turn Up The Foreclosure Heat

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Many analyst takes on commercial real estate markets have been in terms of where loans stood. This includes CMBS, banks and what have you – but the question has been percentages of delinquencies or properties in special servicing.

There’s been an assumption that banks in particular have been indulging in the practice colloquially called “extend and pretend.” In April, Autonomous Research estimated that 40% of bank CRE loans maturing this year actually being holdovers from 2023 and that banks on average are reserving 8% of their CRE portfolios, which is about five times more than normal. PGIM Real Estate that expected bank CRE maturities was up 35% from previous estimates.

But where the concrete meets the pavement, if you will, is when lenders take back properties, whether because borrowers have walked away, or the hammer has come down in a foreclosure. That’s on the rise, according to a Wall Street Journal report.

Portfolios of foreclosed and seized properties reached $20.5 billion, according to data from MSCI. That’s a 13% quarter-over-quarter jump and the highest figure since 2015.

Back to extend and pretend. No lender wants to take the keys back. They don’t have the expertise in profitably running a building nor the desire. Legally holding the property means that the value hits the balance sheet in an uncomplimentary way and investors start asking what is going on.

However, delay tactics last only so long because auditors will eventually say the time has come to admit defeat. Then investors can see what is happening and they start asking pointed questions.

A Journal graph of the MSCI data shows the total of seized properties over time. The current $20.5 billion isn’t at the heights of the Global Financial Crisis when it was more than double. But the trend line is on an upswing, suggesting a good chance that things could get considerably worse, especially in offices, where only 15% are in the Class-A category, which has maintained values higher values and lower vacancies. The remaining 85% are in potentially big trouble because there is decreasing evidence that they can be saved by would-be tenants.

Higher rates of foreclosures have, in the past, signaled the end of a crisis and the arrival of a bottom. Lenders who take back properties usually want it off their books quickly. That can aid price discovery, as the Journal notes, and help the market start to work again.

Currently, the economy is looking relatively strong, with a first Fed rate cut possibly in the offing in September. Should there be a slide, however, CRE markets could get far worse.

 

Source:  GlobeSt.

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CRE Loan Distress Hits Third Consecutive Record

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Distress hit a new record for the third consecutive month according to a new report from CRED iQ. It was up 14 basis points in May and reached 8.49%.

“The CRED iQ team evaluated payment statuses reported for each loan, along with special servicing status as part of our monthly distress update,” they wrote. “CRED iQ’s special servicing rate now stands at 8.09% and the CRED iQ delinquency rate is at 5.8% for this month.”

The delinquency rating includes “all CMBS properties that are securitized in conduits and single-borrower large loan deal types” but not Freddie Mac, Fannie Mae, Ginnie Mae, and CRE CLO loan metrics, which are treated in separate analyses.

CRED iQ calculates distress levels by looking at both delinquency and specially serviced rates.

“The index includes any loan with a payment status of 30+ days or worse, any loan actively with the special servicer, and includes non-performing and performing loans that have failed to pay off at maturity,” they write.

Most property types are flashing red as distressed rates run from 7.1% in multifamily (improved by 10 basis points month over month), 11.1% in office (better by 60 basis points), 11.3% in retail (better by 60 basis points), and 9.4% in hotel (worse by 70 basis points). Industrial was at 0.5% (10 basis points worse) and self-storage, 0.1% (flat).

This being about CMBS, one single event can have an outsized effect on the whole picture.

“One example of a recent hotel default includes the Grand Wailea hotel, which is backed by a $510.5 million loan with an additional $289.5 million in mezzanine debt,” they wrote. “This was the primary driver of the increased distressed rates in hotels this month. The loan fell delinquent (performing matured) as it failed to pay off at its May 2024 maturity date. Commentary indicates there are five, one-year maturity extension options. The 776-room, oceanfront, luxury resort is located on the south shore of Wailea, Maui. The asset was performing with a below breakeven DSCR of 0.93 and 49.9% occupancy as of year-end 2023.”

Of the loans, 24.4% are currently, 2.0% are late but in the grace period, and 5.5% are late but less than 30 days.

Source:  GlobeSt.

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Commercial Loan Repayment Delinquencies Shoot Up Across All Lender Groups

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Commercial and multifamily mortgage delinquency rates rose in the first quarter and in some cases the rate of increase in recent months has picked up steam, signaling growing problems for mortgage holders.

Loans held in commercial mortgage-backed securities had the highest delinquency rate, according to the Mortgage Bankers Association. Moreover, those rates have been rising steadily in the second quarter, according to bond rating agencies that track the data monthly.

However, it was banks and thrifts that saw the largest jump in the most seriously delinquent loans in the first quarter.

Bank and thrift loans 90 or more days delinquent or in non-accrual status jumped 0.13 percentage points from the fourth quarter of 2022. Those loans now make up 0.58% of outstanding commercial and multifamily loan balances, according to the MBA.

“Ongoing stress caused by higher interest rates, uncertainty around property values, and questions about fundamentals in some property markets are beginning to show up in commercial mortgage delinquency rates,” Jamie Woodwell, MBA’s head of commercial real estate research, said in a statement. “Delinquency rates increased for every major capital source during the first quarter, foreshadowing additional strains that are likely to work their way through the system.”

The banking industry continues to face significant downside risks and the Federal Deposit Insurance Corp. said they will be stepping up ongoing supervision of banks’ loan quality.

“Credit quality and profitability may weaken due to these risks and may result in a further tightening of loan underwriting, slower loan growth, higher provision expenses, and liquidity constraints,” FDIC Chairman Martin Gruenberg said in a statement about the industry’s first-quarter results. “Commercial real estate portfolios, particularly loans backed by office properties, face challenges should demand for office space remain weak and property values continue to soften.”

The Mortgage Bankers’ quarterly analysis looks at commercial and multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities, life insurance companies, and Fannie Mae and Freddie Mac. Together, these groups hold more than 80% of commercial and multifamily mortgage debt outstanding.

Based on the unpaid principal balance of loans, delinquency rates for the other four groups at the end of the first quarter of 2023 were as follows:

  • Life company portfolios (60 or more days delinquent): 0.21%, an increase of 0.10 percentage points from the fourth quarter;
  • Fannie Mae (60 or more days delinquent): 0.35%, an increase of 0.11 percentage points;
  • Freddie Mac (60 or more days delinquent): 0.13%, an increase of 0.01 percentage points;
  • CMBS (30 or more days delinquent or foreclosed upon): 3%, an increase of 0.10 percentage points.

The latest CMBS numbers show a quickening of deteriorating loan quality, according to S&P Global Ratings.

The U.S. CMBS overall delinquency rate rose 0.39 basis points month over month in May, the bond rating firm reported. This was the largest increase since June 2020 when the coronavirus pandemic had shut down many offices, hotels, and retail centers across the country for weeks.

By dollar amount, total delinquencies rose to $22.9 billion, a net increase of $2.8 billion month over month and $3.9 billion year over year. Seriously delinquent CMBS loans of 60 more days late in payments represented 89.7% of the total, according to S&P.

Delinquency rates for office loans increased 1.2 percentage points to 4%, according to S&P. That was the fifth consecutive month of increase and now stands at $7.2 billion.

 

Source:  CoStar

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