KBRA releases a report on the magnitude and change in distress rates of the largest metropolitan statistical areas (MSA) in U.S. private-label commercial mortgage-backed securities (CMBS) 2.0 between June 2022 and August 2023. The study population includes nearly $600 million of collateral across KBRA-rated and nonrated conduit, single-asset single borrower (SASB), and large loan transactions.

CMBS 2.0 delinquent or specially serviced loan volume reached 6.8% in August 2023, up from 4.5% in June 2022. The rate (hereafter called the “distress rate”) began its climb soon after the Federal Reserve began raising interest rates in March 2022―the start of its fastest rate hiking cycle over the past 35 years, which has included 11 increases totaling 500 basis points (bps) so far. While these rate hikes contributed to the rise in the CMBS 2.0 distress rate, there remains a wide disparity in performance across metropolitan areas. Among the top 20 U.S. MSAs by balance in CMBS 2.0, Chicago’s distress rate exceeded 22% and San Diego was less than 1%.

Key observations from the report are as follows:

• The distress rate across the 20 largest markets was 7.2%, which is slightly above the national CMBS 2.0 rate of 6.8%.
• While the rates for the majority of these MSAs were lower than the national rate, seven exhibited higher rates, with five over 10%. Chicago topped the list at 22.7%, with Denver, Philadelphia, San Francisco, and Houston rounding out the top five.
• Seven of the top 20 MSAs had a rate under 2% (Orlando, San Jose, Phoenix, Miami, Boston, Seattle, and San Diego).
• All but one MSA experienced an increase in office distress rates; conversely, lodging rates decreased in 16 of 20 markets. Retail, multifamily, and mixed-use assets exhibited varied performance across the 20 markets, while only three markets (New York, Chicago, and Philadelphia) have distressed industrial loans.
• The MSAs with the highest distress rates by property type include New York (retail, 17%), Denver (office, 40.2%), Houston (mixed-use, 75.5%), and San Francisco (lodging, 59.3%; multifamily, 22.7%).

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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