Higher interest rates, decreased demand in the office sector and a rise in defaults have put the brakes on the CMBS market. Bloomberg reports that only about $4.27 billion in commercial mortgage bonds have been issued so far this year, down from $29.38 billion at this same point last year (data based on deals without government backing).

Fitch Ratings’ U.S. CMBS delinquency rate increased three bps to 1.85 percent in January 2023 from 1.82 percent in December 2022. Pursuant to an SEC filing, subsidiaries of the fund Brookfield DTLA Fund Office Trust Investor have defaulted on loans for the Los Angeles Gas Company Tower (555 West 5th Street) and 777 Tower (777 South Figueroa Street). On the right coast, after spending $104M on purchase $45M on renovation, Related Fund Management and BentallGreenOak (BGO) have agreed to a deed-in-lieu-of-foreclosure arrangement with their lender for The Point LIC, a two-building office complex in Long Island City, according to GlobeSt.com.

The horizon does not look too attractive. According to S&P (citing data from DBRS Morningstar), around $30 billion worth CMBS loans tied to roughly 400 commercial properties in Los Angeles and Orange counties in California will come due by the end of 2023, with only about $3.5 billion of the total already paid back.

Last Updated on February 19, 2023 by Ramin Seddiq