Distress looms as LA and OC see $21B in CMBS loans come due in 2024

A lot of debt tied to L.A. and Orange County properties will come due this year — and a lot of it is already in trouble. 

About $21 billion worth of commercial mortgage-backed securities and collateralized loan obligation debt backed by L.A. and O.C. properties will mature in 2024, according to data from Morningstar Credit Analytics. Roughly $30 billion came due last year. 

That debt, of which about $2.7 billion has already been paid off, is tied to about 400 properties.

Almost 60 percent of the CMBS and CLO loans coming due this year are either watchlisted or already in special servicing, which often indicates a default is expected or has occurred. About $250 million worth of loans are delinquent before they have even come due. 

This ballooning billions in debt makes up part of what experts call “the wall of maturities.” 

When debt was cheap in 2020 and 2021 because of the Federal Reserve’s decision to hold interest rates near zero, many borrowers flocked to the capital markets to refinance their commercial properties. Many of those loans came due last year or will this year, but in a very different rate environment. 

Commercial owners face trouble in refinancing, given the cost of debt has risen significantly. Any potential buyers of the property have the same challenge in accessing capital. This has led many owners to default or walk away from properties, leaving lenders to deal with the consequences. 

Blackstone is the borrower behind six out of the largest 10 CMBS deals for Southern California properties maturing this year, with the largest a $2.7 billion debt backed by 138 warehouses across California, Texas, Florida and other states. 

That CMBS package is set to mature in August 2024 and was watchlisted in November for a low debt service coverage ratio, a metric used to compare the cost of debt payments compared to income generated by the properties. 

About 30 percent of the loans coming due are tied to retail properties, including regional malls, while 22 percent are tied to office buildings and 19 percent to multifamily. The rest is backed by hotels, industrial properties, self-storage and other mixed-use assets. 

Some loans seem to perform well, according to Morningstar’s metrics, like debt tied to Blackstone and Worthe Real Estate Group’s 2 million-square-foot office portfolio in Burbank, slated to come due in October. 

Worthe’s $660 million in CMBS loans have a fixed interest rate of 3.54 percent, making the rise in interest rates more bearable for the owners. The properties were 91 percent occupied as of September, according to Morningstar. 

Large loans tied to two separate office towers in Downtown Los Angeles are also coming due this year: $300 million tied to Rising Realty’s One California Plaza will mature in November, while about $377 million tied to Brookfield’s Bank of America Plaza comes due in September. 

One California Plaza, the 1 million-square-foot tower located at 300 South Grand Avenue, makes just enough income to cover its debt payments due to an increase in operating expenses, according to Morningstar, which cited special servicer commentary.