KBRA: Nearly a Third of Office CMBS is Distressed
The volume of distressed office in conduit and single-asset, single-borrower CMBS increased to a combined $52.2 billion in March, nearly double the $26.6 billion volume a year ago, according to Kroll Bond Rating Agency’s KBRA Credit Profile (KCP). Thirty-one percent of office loans by balance, or nearly one-third, are considered KBRA Loans of Concern, meaning they are in default or at heightened risk of default.
Of cities with at least $5 billion in outstanding CMBS debt, Chicago has the highest distress rate at 75%, according to KCP. Rounding out the top five for office CMBS distress in March were Denver (65%), Houston (57%), Philadelphia (52%) and Atlanta (49%). New York City and Los Angeles, the two largest markets for CMBS lending, had distress rates of 25% and 30%, respectively.
KBRA cited two notable loans identified as K-LOCs in March. They include the following:
- The $50-million 333 South Wabash loan (pari passu in multiple 2020 conduits), due to declining collateral cash flow, owing to higher operating expenses. Real estate taxes climbed to $11.2 million in 2023, up from $7 million two years prior. The property’s largest tenant, Northern Trust (45%), has also announced plans to lay off around 900 workers. The loan is secured by a 44-story Class A office building in downtown Chicago, which underwent a $167.5-million renovation in 2019.
- The $52.5-million Spectra Energy Headquarters loan (JPMBB 2014-C25; CMBX 8), based on reports the sole tenant is not expected to renew its lease at the collateral, a 614,000-square-foot office building in Houston. Spectra Energy leases the entire building through April 2026, but reports indicate the tenant has relocated elsewhere in the city. “We believe a large portion of the subject is currently dark,” KBRA reported.
Pictured: 333 South Wabash in Chicago.
