The commercial mortgage-backed securities (CMBS) market is sending mixed signals: distress is surging to levels unseen in over a decade, even as issuance in the first half of 2025 jumped by 35% over the same period in 2024. This paradox warrants exploration of evolving market trends.
Distress Surge
According to a report released by commercial real estate research firm Trepp, the special servicing rate for CMBS loans soared to 10.57% in June, marking the highest point since 2013 and capping a three-month streak of rising distress. This escalation signals spreading market unrest, as office, mixed-use and retail loans (in that order) constitute the majority of loans placed into special servicing in June. As CMBS lenders face mounting risk, their borrowers are sure to encounter heightened scrutiny as they navigate workouts and position for refinancing.
Issuance Revival
Despite mounting distress, Trepp reports that private-label CMBS issuance in the U.S. has reached its highest level in 15 years. The first half of 2025 saw a 35% year-over-year increase, even as Q2 issuance dropped sharply. This resurgence suggests that investors and originators are undeterred by headline risk, betting instead on selective opportunities and long-term viability. Appetites in the lending markets are adjusting, with capital flowing to perceived stable assets and away from legacy risk.
Strategic Implications: Rethinking Risk and Opportunity
The coexistence of rising distress and increased issuance begs reconsideration of traditional risk models. Commercial real estate professionals are embracing a dual reality: distress and growth can, and do, coexist. Those who adapt their investment strategies and risk appetite accordingly will be best positioned to seize opportunity in a fluid financing environment.