S&P Global Ratings' quarterly review of the U.S. commercial mortgage-backed securities (CMBS) market reflects credit and issuance conditions, including delinquency and special servicing rates, for conduit and single-borrower transactions as of first-quarter 2025.

Request For Comment Issued

In February 2025, S&P Global Ratings proposed a combined global criteria framework for rating CMBS transactions (see "Request for Comment: Global CMBS Methodology And Assumptions," published Feb. 25, 2025). The proposed framework will supersede the suite of CMBS criteria we have been using to rate transactions backed by commercial mortgages. The comment period for the proposal ended March 25, 2025, and the current criteria will remain in effect until we finalize the proposed criteria.

Delinquency And Special Servicing Rates Increased; Office Modifications Rising

The overall 30-plus day delinquency (DQ) rate for U.S. CMBS transactions declined 14 basis points (bps) quarter over quarter to 5.5% in first-quarter 2025. Meanwhile, the office DQ rate, which remains the highest of the five major property types, declined for three consecutive months to 8.3% after peaking at 9.9% in December 2024. The DQ rate for retail rose 22 bps to 6.8% in the first quarter, while lodging rose 13 bps to 5.3% and multifamily rose 102 bps to 4.7% (the latter mostly due to one loan, Parkmerced, in San Francisco). Industrial continued to outperform with a 0.6% DQ rate.

The delinquent loan population is perhaps understated, given that the modified loan population is rising. Modified loans represented approximately 8.5% ($53 billion) of the $651 billion total U.S. CMBS outstanding balance as of March 2025, a 40 bps quarter-over-quarter increase. While some of the overall rate is more a function of the legacy modifications (mostly lodging and retail) that were allowed soon after the onset of the COVID-19 pandemic and not an accurate indicator of current sector stress, the office modification rate rose quickly quarter over quarter, up 210 bps to 8.3% (see "SF Credit Brief: U.S. CMBS Delinquency Rate Rose 14 Basis Points To 5.5% In March 2025; Multifamily Rate Climbs To 4.7%," published April 2, 2025).

The overall special servicing rate increased approximately 10 bps to 9.0% in the first quarter. For perspective, the recent peak was 9.5% in September 2020. The office and retail sectors lead with special servicing rates of 14.4% and 10.1%, respectively.

Surveillance And Rating Actions

S&P Global Ratings downgraded slightly over 500 CMBS classes during the 12-month period ended March 31, 2025. Our rating outlook continues to trend negative, with the rating actions mostly taken on single asset single borrower (SASB) transactions and, recently, on conduit transactions with notable exposure to distressed office and retail mall assets. Tariff-related market shifts add another source of uncertainty. Taking into account an already stressed consumer and a base-case forecast for low economic growth, the current environment appears somewhat negative for industrial (ecommerce), lodging (consumer spending and tourism), retail, and multifamily fundamentals (see "SF Credit Brief: Inflation And Affordability Challenges Remain For Consumers Despite Low Unemployment," published March 19, 2025).

In the Appendix, we provide line-by-line detail on the U.S. CMBS rating actions taken by S&P Global Ratings during the past two quarters, including transaction and class names, CUSIPs, property type, transaction type, and current and previous ratings. For greater transparency, we also include the rating affirmations.

Chart 1

During the past 12 months, many office-backed SASB transactions have experienced downgrades across the capital stack, including 'AA (sf)' and 'AAA (sf)' rated classes. While there have been some signs of stabilization in newer and higher quality class A buildings, meaningful recovery in values and fundamentals for the broader sector will likely be a much longer process. We've also started to see more rating actions on retail mall SASBs that are facing refinancing issues, especially the 2012-2013 vintages, which have started to reach the end of their extension periods and are moving into their hard tail periods. However, unlike many office transactions, which require servicer advancing, retail assets generally remain cash flowing and are able to cover debt service.

It is important to note that a rating committee's view of temporary versus longer-term impairment may determine how far up the capital stack ratings actions will go. Our ratings reflect timely interest and ultimate principal, and the servicer advancing mechanism provides some support to timely interest in the speculative-grade ('BB+' and below) and low-investment-grade ('BBB' and 'A') rating categories.

SASB Issuance Is Still Booming

Combined SASB and conduit private label issuance volumes (excluding commercial real estate collateralized loan obligations [CRE CLOs]) more than doubled year-over-year to $27 billion and $10 billion as of March 2025, respectively, compared with 2024 issuance volumes. The issuance mix trend of a roughly 70/30 split between SASB and conduits continues. Also, in recent quarters, there has been a steady flow of relatively newer five-year conduit offerings alongside the more traditional 10-year transactions. We forecast combined SASB and conduit private label issuance reaching $110 billion this year.

A Dozen New Conduits Came To Market

Twelve new conduit CMBS transactions totaling about $10 billion were issued in the first quarter, similar to the 12 and 11 transactions issued in third- and fourth-quarter 2024, respectively. We rated four of the first-quarter 2025 offerings. The rated transactions had an average of 38 loans and an average deal size of $872 million, with both metrics up modestly quarter over quarter (see table 1). Our high-level observations include:

• Overall loan-to-value (LTV) ratios have been rising and increased 110 bps quarter over quarter to 89.5%. Average transaction size (and loans per transaction) increased modestly quarter over quarter, but the transactions in aggregate remain smaller and more concentrated compared to the 2021 and 2022 vintages.
• DSC ratios have generally been lower with the "higher-for-longer" benchmark interest rates, and the average DSC fell 0.1x quarter over quarter to 1.29x. Multifamily loan concentrations remained elevated, perhaps contributing to the lower DSCs, as these are typically underwritten to lower coverages versus other major property types. Cash flow and value variance levels were up quarter over quarter but not too far off the full-year 2024 averages.
• Full-term interest-only (IO) percentages have been running high in recent quarters, especially with more five-year transactions. Partial-term IO loans have become less common in recent vintages. Overall, the combined IO loan exposure for the first-quarter 2025 transactions averaged about 90%.

Table 1

Property Type Exposures: Multifamily Rising

Property type compositions in conduit transactions have seen some notable quarter-over-quarter and year-over-year changes. Multifamily remains elevated and has claimed an over 20% market share for the third consecutive quarter. Private-label conduits have been increasing their presence as the government agencies' (Freddie Mac and Fannie Mae) pull back on multifamily lending volumes due to DSC and other constraints. Pure retail loans have steadily declined to 17% of first-quarter 2025 transactions from over 30% in the first half of 2024. However, mixed use loans (captured in the "other" category) remained steady at 11% of collateral in both first-quarter 2025 and fourth-quarter 2024. Further, many mixed-use properties contain a retail component. Lodging increased a few points to 15% of collateral as post-pandemic performance has generally been positive, while industrial decreased slightly from recent quarters to 7%.

Chart 2

Single-Borrower CMBS Deal Size Is Growing

Some 28 transactions totaling $27 billion priced in first-quarter 2025, up from the $21 billion priced in fourth-quarter 2024. The average deal size was considerably higher quarter over quarter, rising to $950 million in the first quarter versus $684 million in the previous quarter. We reviewed and provided rating feedback on 20 of the 28 transactions priced in the first quarter but did not rate any of them. Although the average LTV ratio declined a little quarter over quarter, it remains elevated compared with recent history (see table 2). In addition, the first-quarter 2025 issuances featured notable jumps in cash flow and value variances.

We declined to provide preliminary rating feedback on eight transactions in the first quarter. Our main reasons for declining preliminary ratings feedback in recent quarters were if the transaction did not cover debt service (on an S&P Global Ratings' cash flow and current SOFR basis) on day one or for certain credit concerns, including single-tenant concentration or extremely high leverage.

Table 2

Resurgent (NYC Office) Loans Lead SASB Property Type Exposure

Several New York office SASB issuances (36% of total SASB volume) headlined an active first quarter for that property type. The other category (which comprises mostly data centers; 17%), retail (17%), industrial (14%), and lodging (11%) all boasted double-digit shares of total SASB issuance. Lodging, multifamily, and mixed-use all took a breather after an active fourth quarter, posting significantly lower quarterly issuance.

Chart 3

Appendix

Related Criteria

• CMBS Global Property Evaluation Methodology, Sept. 5, 2012
• Rating Methodology And Assumptions For U.S. And Canadian CMBS, Sept. 5, 2012

Related Research

• SF Credit Brief: U.S. CMBS Delinquency Rate Rose 14 Basis Points To 5.5% In March 2025; Multifamily Rate Climbs To 4.7%, April 2, 2025
• SF Credit Brief: Inflation And Affordability Challenges Remain For Consumers Despite Low Unemployment, March 19, 2025