KBRA releases research assessing office loans that may have an elevated risk for refinancing. We identified this exposure across our rated conduit transactions by analyzing performing non-defeased office loans, maturing in the near term, with lower KBRA debt yields (KDY), as well as any office loans that are delinquent, specially serviced, or matured as a percentage of deal balance (collectively, the “elevated-risk” office loans).

KBRA reviewed its conduit universe with loans maturing through 2025 to identify transactions with the highest combined exposures to elevated-risk office loans (mostly 2013-15 vintages). KBRA also looked at transactions from the 2016-2022 vintages and examined the combined office exposure to elevated-risk office loans. For these transactions, we examined lower KDY loan exposures regardless of maturity, as these vintages do not have many office loans maturing over the next few years.

Some key takeaways include the following:

• Among the office maturities, 43% by principal balance (3.5% of KBRA-rated conduits) and 34% by loan count have KDYs of ≤8.5%. Lower KDY suggests that some of these loans may face more challenges refinancing, resulting in increased special servicing transfers and higher default risk as the loans approach maturity.
• Price discovery between buyers and sellers in the office sector is expected to continue to pressure pricing and dampen volume. For elevated-risk office loans with near- to medium-term maturities, this backdrop will continue to pressure refinancing.
• Elevated-risk office loans in highlighted transactions are in high vacancy markets such as Chicago (23.7%), Houston (26%), Los Angeles (25.5%), Manhattan (22.1%), San Francisco (24.8%), and Washington, DC (19.7%), which all exceed the national office vacancy rate of 18.6%, according to Cushman & Wakefield’s Q1 2023 Office Marketbeat report.
• JPMBB 2015-C30 has the largest percentage of office loans maturing through 2025 (50.4%), with an elevated risk of 30.8%. CGCMT 2015-GC31 has the highest exposure to elevated-risk office loans at 40.2%. Office loans equating to 31% of the deals’ principal balance mature through 2025.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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