The CMBS Mess

The share of commercial mortgage-backed securities loans tied to office properties nationally has ballooned over the past 12 months, according to new figures. That could spell trouble for major markets coast to coast. Also for today — and not unrelated — the methods of appraising commercial buildings, especially office buildings, has changed dramatically amid higher vacancies and steeper interest rates.

And just a reminder that you can keep up with all the major leasing, financing and sales deals with Commercial Observer’s new Deals of the Week.

— Tom Acitelli, Deputy Editor

Report: Nearly One-Third of National Office CMBS Is Distressed

In 2024, U.S. office distress isn’t getting any better. If anything, it’s gotten worse. A new report from KBRA Credit Profile — a subsidiary of KBRA Analytics — found that the volume of distressed conduit commercial mortgage-backed securities (CMBS) and single-asset, single-buyer (SASB) CMBS secured by national office buildings has nearly doubled in the last year. The volume of CMBS office loans either in special servicing or at risk of default has jumped from $26.6 billion in March 2023 to $52.2 billion in March 2024, according to KBRA. Out of a $168.4 billion national office CMBS securitization market, approximately 31 percent of all non-defeased CMBS loans that still have office as collateral are now distressed. “I think it’s a pretty tangible concern,” said Mike Brotschol, managing director at KCP and co-author of the report.

Read the story

Check out our newest Deals of the Week, featuring the top commercial real estate transactions at a glance — plus a deep dive into the key players behind each transaction.

Commercial Real Estate Appraisers Have Had to Adjust Their Measures

Voltaire once said, “Appreciation is a wonderful thing — it makes what is excellent in others belong to us as well.” Without stepping on an enlightened man’s toes, it does beg the question: How can you appreciate anything if you don’t know its value? In the world of commercial real estate finance, appreciation — either metaphorically or economically through increased building values — has been a rare virtue over the last four years. This is particularly true in the beleaguered office sector, where hybrid work has ravaged traditional cash-flow assumptions, as well as within other asset classes as high interest rates have hindered values since early 2022. “In this interest rate environment, our valuations have dropped incredibly, and buildings that were trading at $800 to $1,000 per square foot have traded at $300 to $500 per foot,” said Rod Kritsberg, managing partner at K Property Group, a New York office developer. “There’s few trades and it’s very limited, but values have dropped precipitously — not just in the office sector, but across the market.”

Read the story

Enjoying these stories on all things CRE? Unlock unlimited access to our content with a subscription. And for a daily version of this newsletter, sign up here.