$JOJO: CMBS Are Flashing Stress Signals
Description
Investors are watching commercial real estate through a split lens. On one side, public CMBS (commercial mortgage-backed securities) are flashing stress signals. On the other, private office loans seem to be holding their ground. Trepp’s latest report shows CMBS office delinquencies at 5.58% in September, pushing the overall CMBS delinquency rate to 4.39%, the highest level since the pandemic¹. Fitch similarly reported a spike in U.S. office CMBS delinquencies to 8.12% in September, driven largely by a $180 million default on a Manhattan property². More than $1 billion of newly delinquent CRE loans that month came from the office sector².
By contrast, loans held by banks and life insurers are showing fewer cracks—at least for now. The Mortgage Bankers Association noted delinquency rates of 1.29% for bank CRE loans and 0.51% for those held by life insurers as of mid-2025, compared to 6.36% for CMBS loans³. While this gap partly reflects different reporting methods, it also stems from how distress is handled. CMBS loans follow a rigid servicing process, with less flexibility and higher costs for borrowers. Private lenders often renegotiate terms quietly, sidestepping public scrutiny and regulatory constraints⁴.
Those structural differences influence how problems show up. In the CMBS space, servicers are modifying loans faster than in past cycles. Trepp found that since 2010, the median time from delinquency to modification dropped to about 2.7 months, down from roughly 14 months pre-2009⁵. Foreclosures, however, have slowed—loans now sit delinquent for more than 19 months before reaching REO status⁵. That leaves CMBS investors with faster discounts but slower recoveries. On the private side, lenders might stretch out modifications longer, hoping to avoid taking immediate losses.
Which side breaks first? Based on recent data, CMBS is already showing strain. That could foreshadow broader trouble ahead. Nearly $4 trillion in commercial real estate debt is set to mature by 2028, much of it in the office sector. If refinancing remains tight, even private loans could tip into distress.
For investors, this creates a complex backdrop. The divergence between CMBS and private credit suggests volatility will rise as more data comes to light. It may be time to think tactically. The ATAC Credit Rotation ETF (ticker: JOJO), my fund, offers one approach. It shifts between high-yield bond ETFs and long-duration Treasuries based on volatility signals, aiming to adjust exposure dynamically depending on market stress⁶. Rather than staying locked into one segment, JOJO adapts to changing credit conditions, potentially limiting downside in tougher environments.
No strategy can eliminate risk. Still, as office loans move from slow-burn to spotlight, an active approach may offer an edge. The cracks in CMBS today might be tomorrow’s headlines in private credit. Staying nimble could be the difference between reacting to stress and positioning ahead of it.
Footnotes
¹ Trepp, CMBS Delinquency Report: September 2025.
² Matt Tracy, “U.S. Office Loan Delinquencies Rise in September – Fitch,” Reuters, October 3, 2025, https://www.reuters.com/markets/us/us-office-loan-delinquencies-rise-september-fitch-2025-10-03/.
³ Mortgage Bankers Association, “Commercial/Multifamily Mortgage Delinquency Rates for Major Investor Groups: Q2 2025,” https://www.mba.org/.
⁴ Womble Bond Dickinson, “CMBS vs. Portfolio Loans: Workout Considerations for Commercial Real Estate,” https://www.womblebonddickinson.com/us/insights.
⁵ Trepp, “Three Eras of CMBS: How the Past Two Cycles Shape Today’s Workouts,” https://www.trepp.com/.
⁶ ATAC Funds, “ATAC Credit Rotation ETF (JOJO) Overview,” https://www.atacfunds.com/.
Junk debt, also known as high-yield bonds or speculative-grade debt, refers to fixed-income securities issued by companies or governments with lower credit ratings, offering higher interest rates to compensate investors for the elevated risk of default.
The VIX index, often called the "fear gauge" of Wall Street, is a real-time market index that measures the market's expectation of 30-day forward-looking volatility derived from S&P 500 index options prices, serving as a key barometer of investor sentiment and market risk.
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