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Improvement in CMBS Delinquencies is Expected to Wane 

CMBS delinquencies posted a two-basis-point decline in September, Fitch Ratings and Kroll Bond Rating Agency (KBRA) reported. However, KBRA noted that the slight improvement followed two months of double-digit declines, and Fitch said it’s expecting the pace of improvement to wane with growing macroeconomic concerns affecting refinance activity and resolution velocity. 

“These concerns include rising interest rates, high inflation, slowing economic growth, as well as the prospect of the U.S. entering a mild recession in mid-2023,” according to Fitch. Reduced CMBS issuance volumes will also negatively affect the rate.”  

Accordingly, Fitch has revised its year-end outlook for delinquencies, forecasting that it doesn’t see the delinquency rate falling below 1.75%, a revision from the 1.25% forecast made at the beginning of the year. 

A notable trend cited by KBRA is the continued growth in specially serviced office loans, which are up 11.6% to $2.8 billion since March 2022 among conduit CMBS. In addition, the rating agency said, “office is the sole major property type to experience a rise in special servicing volumes. This contrasts with other property types, which have experienced decreases in specially serviced volume ranging from 13.4% to 52.4% over the same period.  

“While office/remote work trends have become clearer this year, overall demand for space is down as companies may be hesitant about making long-term commitments for office space, given economic uncertainty,” said KBRA. “These factors are likely to contribute to increased special service loan transfers in the sector.” 

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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 13-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 15-20 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).

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