Office, Retail Lead CMBS Special Servicing Rate Surge

The CMBS special servicing rate spiked up in February, rising 45 bps to 10.32%. This came after a brief dip in January, which was the first drop in over a year, per Trepp.

Napkin Math

The rate surge was largely due to two factors: a $1.8B rise in the net balance of loans in special servicing and a $8.8B drop in the overall balance of loans outstanding.

As a result, the rate jumped because a larger numerator (the loans in special servicing) was divided by a smaller denominator (the total balance of loans).

Retail, Office in Lead

Two property types—retail and office—were the primary drivers behind the surge in the special servicing rate:

• The retail loan rate increased by 59 bps to 11.26%, reversing a 100-bp drop in January. 
• The office loan rate soared by 108 bps to 16.19%, reaching its highest level in over 25 years.

Mixed-Use Properties

Mixed-use properties also saw a big rise, with the special servicing rate climbing 33 bps to 13.04%. This marks the first time in over a decade that the mixed-use rate surpassed the 13% threshold.

Office Dominates Transfers

In February, new transfers to special servicing totaled just over $2.3B. Office loans accounted for the majority of the increase, with $1.8B in office loans contributing nearly 78% of the monthly total.

This was a steep jump from January, where office loans transferred to special servicing were half that volume.

Looking Ahead

The sharp rise in the CMBS special servicing rate reveals ongoing challenges in the office and retail sectors. The rise in special servicing suggests more challenges ahead for these sectors, with potential long-term implications for CMBS performance.