US commercial property delinquencies rise further in July, report says

[1/2]Buildings stand in New York City, U.S., July 26, 2023. REUTERS/Amr Alfiky

July 26 (Reuters) – Nearly $12 billon of loans in U.S. commercial mortgage-backed securities (CMBS) became newly delinquent, pushing the late payment rate up by 34 basis points from June to 3.93%, a report by credit rating agency KBRA said on Wednesday.

The rise in the rate reflects continued stress in the U.S. commercial real estate sector as a post-pandemic environment had more people working from home or shopping online.

The total rate of delinquent loans or those that entered special servicing rose in July for the fourth straight month and now stands at 6.44%, the report said.

Office loans made up roughly 35% of the newly special serviced and delinquent loans in July rated by KBRA at $898.4 million.

Retail property loans came in second at 26.4%, or $683.4 million, the report said. Mixed-use properties used for both retail and office came in third at 23.7%, or $613.9 million.

So far in July, multiple office properties have been transferred to special servicing due to imminent monetary default. The total special servicing balance on multi-loan CMBS sharply increased $830.7 million to $14 billion, the largest rise since August 2020, the report said.

As loans move into that category, some regional banks that play the role of CMBS special servicers are making more fees.

Chris Gorman, CEO of KeyBank owner KeyCorp (KEY.N), told analysts on a July 20 earnings call that the bank “just set for the second quarter in a row a record in terms of special servicing fees.”

KeyBank’s subsidiary KeyBank Real Estate Capital handles commercial real estate lending and servicing.

“And so I think that will continue,” he added.

Reporting by Matt Tracy; Editing by Shankar Ramakrishnan and Jamie Freed

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