CMBS delinquencies decline, yet fresh bankruptcy highlights lingering concerns.

The delinquency rate for commercial mortgage-backed securities (CMBS) fell to 4.21% in December, reversing the November increase, according to Kroll Bond Rating Agency. However, a recent bankruptcy filing from JER Investors and longer-term trends suggest that some underlying issues in the CMBS market are likely to persist into the new year. Throughout 2023, sector downgrades outpaced upgrades, primarily due to loans maturing into a higher interest rate environment or remote work-related vacancies. While recent statements from monetary policymakers about possible cuts to the federal funds rate may relieve some concerns, Kroll researchers do not expect significant changes in the breadth and magnitude of the rating agency’s CMBS ratings. The highest delinquency rate for December was in mixed-use properties at 7.45%, followed by multifamily at 3.39% and retail at 0.71%. Office loans had a delinquency rate of 4.79%. Lower CMBS ratings will likely continue to outpace upgrades in 2024, but the impact may vary among different players in the CMBS market. CMBS delinquencies have also affected other companies in the commercial market, with Pennsylvania Real Estate Investment Trust and WeWork filing for bankruptcy. Overall, while CMBS delinquencies have dropped, there are still concerns about the stability of the market in the coming year.