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CREFC's January 2024 Monthly CMBS Loan Performance Report

February 27, 2024

CRE Finance Council has released a report on CMBS loan performance for January.*

Key takeaways:

DELINQUENCY RATE INCREASES TO START 2024

  • Conduit/SASB CMBS combined delinquency of 4.66%
    • Delinquency rate rose 15 bps in January, following a modest decrease of 7 bps in the month prior
    • On a YOY basis, the overall combined delinquency rate is up 172 bps (4.66% vs. 2.94% in January 2023
  • Delinquencies in the heavily-watched office sector experienced the most significant increase since September 2023
    • Office delinquency rate jumped 48 bps to 6.30% in January and is 444 bps higher on a YOY basis; Office SS stands at 9.74%, 573 bps higher YOY
    • Convergence of work-from-home (WFH)-induced demand shock, high benchmark, mortgage, and cap rates, and a pullback in bank lending will continue to present office headwinds
  • Delinquency rate is still 566 bps below 10.32% peak in June 2020 – the height of pandemic-related lockdowns. Clearly, the situation today with limited office demand and higher rates suggests perhaps a less benign outcome for certain office loans.
  • Special Serviced (SS) loans rose to 6.95% in January; up 17 bps from prior month and 184 bps higher on a YOY basis
    • As per servicers, loans transferring to SS mostly related to current market dynamics; office loans dominate new entries
    • Servicers say most loans with COVID-related forbearances have returned to original loan terms and are performing as expected
    • Loans still in forbearance or modified are generally paying as required
  • Delinquency and SS rates for SASB continue to climb
    • SASB delinquency rate of 4.14% in January vs. 2.55% in year prior; SASB SS rate of 6.92% vs. 3.94% in year prior. SASB distress driven by floating-rate loans challenged with securing new interest-rate cap and swap agreements at higher strike rates and continued challenges in the office sector (much of which is financed by SASB CMBS).
    • Conduit delinquency has also climbed but at more measured pace: 5.03% delinquency vs. 3.92% in year prior; 6.97% SS vs. 5.90% in year prior
  • Loans in-foreclosure and REO asset rates remain low at 1.22% and 0.90%, respectively
    • Office delinquency and SS rates will continue to increase as more loans with near-term maturity dates have difficulty refinancing; foreclosure and REO rates expected to trend upward as a result

*Source: Trepp. CMBS data in this report reflect a total outstanding balance of $614.3B: 58.8% ($361.3B) conduit CMBS, 41.2% ($253.0B) single-asset/single-borrower (SASB) CMBS.

Click hereto download the full report. Contact Raj Aidasani for more information on CMBS loan performance.

Contact 

Raj Aidasani
Managing Director, Research
646.884.7566
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2023 CRE Finance Council. All rights reserved.
CREFC's January 2024 Monthly CMBS Loan Performance Report
February 27, 2024
CRE Finance Council has released a report on CMBS loan performance for January.

News

Treasury Secretary Yellen’s FSOC Testimony - Commercial Real Estate on Her Mind

February 12, 2024

Treasury Secretary Janet Yellen spoke last week before both the House Financial Services Committee and the Senate Banking Committee to deliver the annual report of the Financial Stability Oversight Council (FSOC). The Secretary is the Chair of FSOC. During her testimony, she spoke to many key FSOC issues including:

  • A positive outlook on the U.S. economy and rates, citing a historic recovery, represented by GDP growth, declining inflation, unemployment below 4%, and an increase in household wealth by 37%.
  • Concerns commercial real estate will impose some degree of stress and financial loss, particularly on smaller banks.

She emphasized that those risks do not pose a systemic risk to the banking system. According to Yellen:

“Valuations (CRE) are falling. And so it’s obvious that there’s going to be stress and losses that are associated with this.”
 
She added:
 
"I hope and believe that this will not end up being a systemic risk to the banking system. The exposure of the largest banks is quite low, but there may be smaller banks that are stressed by these developments."
 

What They're Saying: Yellen’s testimony focused on the Biden Administration’s efforts to usher in a ‘historic recovery.’ Yellen warned continuation of the positive trend depends on a ‘solid and resilient U.S. financial system.’ The Treasury Secretary pointed to five key areas in need of ‘ongoing work’:

  • Banks and Non-Bank Financial Institutions. There arerisks from both banks and non-bank financial institutions, requiring a focus on capital requirements. The non-banks represent a concern due to liquidity mismatches and leverage. Yellen has expressed concerns over the financial stability of non-bank mortgage lenders and servicers in the past, but not as an imminent risk to financial stability.
  • Climate-Related Financial Stability Risks. There is a need for increased focus on climate-related financial stability risks, including severe and frequent climate-related events.
  • Cyber Security Risks. Increasing cyber security risks are a key concern and need to be addressed.
  • Artificial Intelligence. Increasing use of artificial intelligence in financial services, with benefits of reducing costs and improving efficiencies, can also pose both cyber and model risks.
  • Digital Assets Risk. Risks include runs on crypto-asset platforms and stablecoin and potential vulnerabilities from crypto-asset price volatility, and the proliferation of platforms acting outside of or out of compliance with applicable laws and regulations.

In the House, Congressman Andy Barr (R-KY) noted the three statutory purposes of the Financial Stability Oversight Council and Dodd Frank are to:

  • Identify stability risks,
  • Promote market discipline by eliminating bailout expectations, and
  • Respond to emergency emerging stability threats, like the banking crisis last March.

He added that:

FSOC did not identify a systemic risk as it emerged, did not promote market discipline as 100% of large uninsured deposits were bailed out, and did nothing to respond to the emerging stability threat. Nothing would have been different if FSOC had never been created.”

Please contact Lisa Pendergast (lpendergast@crefc.org) with any questions.

Contact 

Lisa Pendergast
Executive Director
646.884.7570
US Department of Treasury Building. Photo was made from scanned 35mm film.
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2023 CRE Finance Council. All rights reserved.
Treasury Secretary Yellen’s FSOC Testimony - Commercial Real Estate on Her Mind
February 12, 2024
Treasury Secretary Janet Yellen spoke last week before both the House Financial Services Committee and the Senate Banking Committee.

News

Failed Votes Punctuate Congressional Priorities

February 12, 2024

Bipartisan deals and partisan votes fell apart in the House and Senate last week. While the presidential election is nine months away, politicians are keeping an eye on November as they consider major legislation on pressing issues.

Why it matters: Government funding partially expires on March 1 and fully expires on March 8. It is not yet clear how or when a deal will come together amid turmoil on other policy priorities.

Impeachment Fails in the House

  • The House failed to impeach Homeland Security Secretary Alejandro Mayorkas by a vote of 214-216 on Tuesday, Feb. 6. All Democrats and 3 GOP members opposed impeachment.
  • Rep. Al Green (D-TX) arrived from the hospital wearing scrubs to vote against the bill to bring the total 215-215 and deny its passage. For procedural reasons, Rep. Blake Moore (R-UT) switched his vote to a “no” to preserve a motion to reconsider.
  • Republicans have been highly critical of Secretary Mayorkas and his department’s handling of the migrant influx at the southern U.S. border. While the vote to impeach was expected to be close, it had been a unifying element among a fractious conference.

What this means: While the setback is a major embarrassment for Speaker Mike Johnson (R-LA), Republicans will likely succeed on a reconsideration once Majority Leader Steve Scalise (R-LA) returns from cancer treatment.

  • If Mayorkas is eventually impeached, the Senate is likely to fall short of the 67 votes needed for a conviction. Democrats view this entirely as a partisan exercise, and some Republican senators have voiced concerns that the impeachment articles are more of a response to bad policy and do not meet the constitutional standard of “high crimes and misdemeanors” for impeachment.

Israel Aid Fails in the House: After the GOP abandoned a bipartisan border deal (more on that below), Speaker Johnson advanced a standalone bill to provide aid to Israel.

  • The Israel aid vote fell short of the two-thirds majority needed for passage on the “suspension calendar” by a margin of 250-180.
  • The move was partially to force a tough vote for pro-Israel Democrats. The White House wants to bundle the aid for Israel with aid for Ukraine. While 46 Democrats voted with the GOP in favor of the aid package, it did not garner enough support to pass.

Senate Activity: For the past few months, Sen. James Lankford (R-OK) had been the lead negotiator on a southern border deal that was to be paired with foreign aid to Israel, Ukraine, and Taiwan. Once the deal was announced, but before any details were shared on the $118.3 billion bill, the border provisions began to lose Republican support.

  • Former President Donald Trump quickly condemned the bill, writing on Truth Social that “only a fool, or a Radical Left Democrat, would vote for this horrendous legislation.” Trump and others have argued that the President should be able to resolve the border crisis without legislation.
  • Senate conservatives quickly followed and the GOP conference was largely united in opposing the bipartisan deal, denying the bill the 60 votes it needed to advance.
  • Republican Leader Mitch McConnell (R-KY) and Sen. Lankford had applauded the bill as a win for Republicans, albeit a compromise bill with Democrats, as it was endorsed by the National Border Patrol Council.

The big picture: President Trump’s hold over Republican lawmakers is still firm, and electoral politics are in play as November elections get closer.

  • In response to the failed border package, Majority Leader Chuck Schumer (D-NY) advanced a standalone $95 billion emergency security bill that would send money to Ukraine, Israel, and Taiwan.
  • Without the border provisions, 17 Republicans crossed the aisle and advanced the bill with 50 Democrats. Absent a fast-track agreement, the Senate remained town over the weekend for procedural votes to keep the bill advancing. The Senate invoked cloture on Sunday and will proceed to final passage early this week.
  • Speaker Johnson opposes putting the bill on the House floor absent border reforms. If considered, the Senate legislation would likely pass the House via a combination of Democrats and Republicans.

The bottom line: Legislating with narrow majorities continues to be complicated. Even the bipartisan tax bill, which resoundingly passed the House, is now facing GOP opposition in the Senate, as some Senators seek to amend the legislation.

Contact David McCarthy (dmccarthy@crefc.org) with questions. 

Contact 

David McCarthy
Managing Director, Head of Policy
202.448.0855
dmccarthy@crefc.org
U.S. Capitol gameshow style with three choices "Yes", "No", and "IDK"
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2023 CRE Finance Council. All rights reserved.
Failed Votes Punctuate Congressional Priorities
February 12, 2024
Bipartisan deals and partisan votes fell apart in the House and Senate last week.

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