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A Taste of What’s to Come – September 18, 2023

The title has a double meaning. On the one hand, it’s a preview of expanded coverage you’ll see beginning this coming Thursday. On the other hand, it’s a look into the future of that expanded coverage’s subject. 

Thursday will see the debut of a weekly Distressed Assets newsletter. We’ve had distressed real estate on our radar screen for the past few years, but the volume of coverage has generally been contained within a biweekly newsletter, usually with five stories from the preceding two weeks. That’s about to change. 

You’ll be seeing original content with insights from industry experts along with a roll-up of our news coverage focused on distressed properties or debt. There will also be a weekly rundown of properties that have gone back to their lenders, put into special servicing or sold in a foreclosure auction. 

We’re bringing this expanded (and more frequent) coverage to you because the time is right to introduce it. A recent newsletter from CRED IQ, a commercial real estate data, analytics and valuation platform, illustrates that even if the storm hasn’t yet blown in at full force, the waves are definitely getting choppy. 

For example, CRED iQ noted that it has put 12,000 commercial real estate loans on the servicer watchlist year-to-date in 2023, with 4,600 added in July alone. What put these loans onto the watchlist? A variety of factors, including debt service coverage ratio, pending maturity, occupancy decreases and imminent departures of major tenants. 

It should come as no surprise that the office sector is seeing deteriorating loan metrics. CRED iQ reported that the office CMBS distressed rate—aggregating the delinquency rate and special servicing rate—reached 9.36% in July, compared to 8% in July. That’s a 17% monthly increase. 

However, office isn’t the only property type with challenges. Trepp reported that retail has the highest special servicing rate among the major sectors at 10.7% in August, although office led the month for newly transferred loans.

Let’s put the current numbers into perspective. Special servicing peaked in 2012, the same year that CMBS delinquencies reached an all-time high. The overall special servicing rate peaked in May 2012 at 13.36%, or about twice as high as the current 6.67%. 

One reason that the numbers haven’t started to climb alarmingly (as opposed to steadily) is that 2023 is seeing relatively few maturities. It is likely to be a very different story in 2024 and 2025. Whatever is coming next year and the one after that, it’s best to begin preparation now. 

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About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 16-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 7-10 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).