Chicago Takes Center Stage in Loan Maturities, Single-Family Rent Growth Slows
Chicago Takes Center Stage in Loan Maturities: The U.S. commercial mortgage-backed securities market closed out 2022 with deteriorating performance, according to an analysis by Kroll Bond Rating Agency. The trend, if it continues, could be particularly ominous for Chicago’s office market, where large loans are set to mature this year.
The loan payment delinquency rate among KBRA-rated CMBS deals rose 0.08% in December to 2.97%, up from 2.89% in November. The rate has now increased for three consecutive months. Though the number is rising, it still remains below the year-end 2021 rate of 4.06%.
A total of $1.3 billion in newly delinquent loans were reported in the final month of the year, the same level as November, KBRA said. More than 75% of the delinquencies were nonperforming balloon loans where a large final debt payment is due. That figure is up from 50% in November.
December defaults were led by several large office loans, according to KBRA.
“The refinancing difficulties are likely indicative of capital market disruption owing to the uncertain interest rate and economic outlook, as well as ongoing concerns about remote and hybrid work’s impact on the office sector,” KBRA analysts noted.
CoStar data shows the two largest office properties with CMBS loans set to mature this year are in Chicago. A $1.3 billion loan on the 4 million-square-foot Willis Tower is scheduled to mature in March. That loan, however, has two one-year extension options remaining. The loan is currently listed as performing.
A $536 million loan on the 2.75 million-square-foot Aon Center is scheduled to mature in July. The borrower is currently making monthly repayments as scheduled.
The largest specially serviced office loan set to mature this year is also in Chicago. A $253 million loan on the 1.45 million-square-foot 175 W. Jackson Blvd. matures in November. The loan has been delinquent in monthly payments since November 2021, according to CoStar data. Brookfield Strategic Real Estate Partners, an affiliate of Toronto-based Brookfield Asset Management, owns the property.
Brookfield did not immediately respond to a request for comment.
Single-Family Rent Growth Slows: Property performance in the single-family rental sector showed signs softening toward the end of 2022. The rent growth for single-borrower, single-family rental securitizations rated by DBRS Morningstar decreased to 6.9% in October from 8% in September. Rent growth started 2022 at an annual rate of 8.3%.
DBRS analyzed data from 45 single-borrower deals with close to 133,000 properties.
The average vacancy rate increased to 5.9% in October from 5.8% in September. The vacancy rate at the start of last year was 3.2%.
The average retention rate for expiring leases decreased to 82.4% in September, the latest month for which data is available, from 84% in August.
Among the largest 20 metropolitan statistical areas, St. Louis had the highest vacancy rate at 9.3%, followed by Denver at 7.3%.
Dallas had the highest rent growth at 8.7%, with Atlanta next at 8.6%. Denver experienced the lowest rent growth at 4.1%.
Chicago had the highest delinquency rate at 13.2%, with Memphis, Tennessee, next at 12.4%.