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Office CMBS Delinquencies Spike Amid High Vacancy Rates

Commercial real estate CMBS delinquencies are rising, with office rates at 7.6%, retail at 6.4%, and lodging at 6.3%, driven by high vacancy rates, e-commerce shifts, and ongoing sector challenges.

The User's Profile Ivor July 4, 2024
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The delinquency rates of commercial real estate mortgages securitized into commercial mortgage-backed securities (CMBS) are worsening, particularly in the office, retail, and lodging sectors. Office CMBS delinquencies spiked to 7.6% in June, driven by reduced demand, floating-rate mortgages, and loan maturities amid higher interest rates. The “extend-and-pretend” strategy is prevalent, where loans are restructured or extended to avoid foreclosure, but the fundamental issue of high vacancy rates and plummeting property values remains. Retail CMBS delinquencies rose to 6.4%, exacerbated by the shift to e-commerce and numerous retailer bankruptcies. Major mall landlords, including Simon Property Group, have walked away from properties, and recent bankruptcies like Express and Joann have added stress to retail properties. Lodging CMBS delinquencies increased to 6.3%, reflecting ongoing challenges in the hotel and resort sectors. Multifamily CMBS delinquencies also rose but remain manageable at 2.4%. The sector is large, with $2.1 trillion in loans, and the U.S. government backs a significant portion. Private-sector CMBS holds a smaller share, making each major delinquency or resolution significantly impact the rates. Industrial CMBS delinquencies remain low at 0.6%, driven by the expansion of infrastructure to support e-commerce.

In 2023, the British Conservative Party ousted Boris Johnson and replaced him with Liz Truss, who was seen as a stronger advocate for free market economics. However, Truss was quickly removed from office, leading to potential electoral disaster for the party. In her book “Ten Years to Save the West,” Truss details the challenges she faced from the civil service and other institutional forces, collectively referred to as “the blob,” which resisted her reforms. The blob, consisting of civil service officials, charitable sector workers, journalists, and members of QUANGOs, obstructed Truss’s efforts in various government departments. This resistance is a relatively recent development, stemming from the Blair/Brown governments, which politicized the civil service and empowered QUANGOs, thereby reducing democratic accountability. Truss criticizes successive Conservative governments for failing to dismantle this system. She highlights the role of the Office of Budget Responsibility (OBR) in undermining her administration by misrepresenting economic forecasts. The financial crisis caused by liability-driven investments (LDIs) was wrongly attributed to her tax-cutting mini-budget, leading to her downfall. Truss warns against the unchecked growth of the administrative state and its anti-conservative bias. She also criticizes the international environmental blob for deindustrializing the West and strengthening China. She proposes an “Economic NATO” of free nations to counter China’s influence and emphasizes the need for continued support for Ukraine against Russian aggression. In her final chapter, Truss outlines six lessons: Conservatives must remain true to their principles, dismantle the leftist state, restore democratic accountability, ensure conservatism wins globally, reassert the nation-state, and reject appeasement of authoritarian powers.


CRE Loan Delinquencies Soar: Office, Retail, and Lodging Sectors Lead the Decline

The delinquency rates of commercial real estate mortgages that have been securitized into commercial mortgage-backed securities (CMBS) – investors on the hook here, not banks – keep getting worse, driven by the not yet fully blooming mayhem in the office sector, and also by the ongoing troubles in mall loans and lodging loans.

Source | Submitted by rhollenb

Liz Truss’ Battle with the Blob: Why the UK’s Conservative Party Faces Electoral Oblivion

The consequence, we will see soon, is likely electoral oblivion for the Conservative Party.

Source | Submitted by Redneck Engineer

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