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KBRA Releases Research – CMBS Servicer Advances: Curtailments Accelerate

via Business Wire

KBRA releases research on the current trends in CMBS servicer advances, appraisal reductions, and nonrecoverable advances. The report examines some of the servicer advancing (SA), appraisal reduction amounts (ARA), and nonrecoverable advance (NRA) trends over the past three years through June 2025, which can provide a window into next year’s trends.

Servicer advancing is an important structural feature in CMBS transactions, given the illiquid nature of distressed commercial real estate (CRE) loans. With the increase in distressed CMBS loans over the past three years, the balance of loans with SA in CMBS 2.0 has risen to $55 billion (8.3% of outstanding CMBS balance), increasing 33% a year on average.

Along with the growth in SA, the curtailment of advances in the form of ARA and NRA determinations have accelerated, especially over the past two years. SA curtailment is expected to expand, given the challenges the CRE markets still face as servicers seek to manage the risk of nonrecoverable advances and ensure there is sufficient room for property protection advances. For some transactions, this will have a meaningful impact on trust cash flows.

Key Takeaways

  • The balance of distressed CRE loans requiring SA has nearly doubled over the past three years to $54.8 billion (8.3% of total balance), while the number of such loans has increased 38.4%, to 1096 from 792.
  • Loans with ARAs total $24.4 billion across 469 loans, representing just over 40% of distressed loans by both balance and loan count.
  • Loans with NRAs total $10.4 billion across 254 loans, a figure that has grown more than tenfold in the past three years.
  • The total amount of ARAs has grown more than 45% annually over the past two years, following a modest 4.1% increase between June 2022 and June 2023.
  • Office (40.9%), retail (19.55%), and lodging (15.6%) loans represent the largest concentrations of distressed loans. However, lodging loans account for 29% of outstanding advances—just behind office (34%) and well ahead of retail (14.9%)—as the average distressed lodging loan has remained in special servicing for a longer period.
  • Office loans also represent the highest share of ARAs (44.9%) and NRAs (39.5%) by loan balance, followed by retail at 25.9% and 20.1%, respectively.
  • Analysis of the 25 conduits with the most SA outstanding shows a wide range of outstanding advances and varying levels of ARAs and NRAs—each of which is a key factor in assessing potential impacts on future deal cash flows. Among these top 25 transactions
    • Outstanding advances range from 36.2% to 0.9% of the outstanding deal balance.
    • The ratio of ARAs to distressed loan balance range from 8.3% to 100%.
    • In some conduits, all distressed loans have NRAs, while others have none.
  • An analysis of the 15 single-asset, single borrower transactions with the most SA outstanding reveals a pool consisting of mainly lodging (six), office (four), mixed-use (four), and one multifamily. All but two have ARAs ranging from 95.4% to 3.6%, while eight have NRA determinations.

Click here to view the report.

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KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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