Finance  ·  CMBS

A Breakdown of CRE Distress in Largest U.S. Markets


CRED iQ monitors distressed rates and market performance for nearly 400 metropolitan statistical areas (MSAs) across the U.S., covering over $900 billion in outstanding commercial real estate debt. Distressed rates include loans that are specially serviced, delinquent (30 days past due or worse), or a combination of both. 

Out of the 50 largest MSAs tracked by CRED iQ, the analysis split these into two groups: primary/gateway and secondary markets. Average distressed rates for the primary/gateway market cohort are 8.8 percent while the secondary markets averaged 9.2 percent.  

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Notable markets within the primary/ gateway cohort with the largest levels of distress included Minneapolis (51.5 percent), Chicago (19.7 percent) and Charlotte (19.6 percent). Minneapolis remains an outlier due to a handful of extremely large loans that are in distress. 

The strongest performing markets within the gateway/primary segments include San Diego (0.2 percent), Seattle (0.6 percent) and San Jose (1.0 percent).  Surprisingly, the analysis illustrates that four of the seven gateway markets are showing significant levels of distress as of the October 2023 reporting period.  

The worst performing gateway markets include Denver (14.2 percent), Washington DC (11.0 percent), New York City (8.4 percent), and Los Angeles (5.4 percent). On the other hand, the best performing gateway markets are Boston, Miami and Seattle.  

Comparing the levels of distress across the 25 largest markets within the Secondary cohort, Hartford, Conn. (31.4 percent), Portland, Ore. (15.4 percent) and Milwaukee (13.7 percent) are the highest.  Hartford ranks No. 2 overall.  

A significant contributor to the elevated levels of Hartford distress was the recent special servicer transfer of the $79 million office loan for CityPlace I.  The loan, which is secured by an 884,000-square-foot central business district office building, transferred to the special servicer (Midland) on Oct. 11, 2023.  

Some of the strongest performing secondary markets with the lowest level of commercial real estate distress include Salt Lake City (0.4 percent), Sacramento (0.7 percent), and Louisville (2.6 percent).  Ten of the 25 secondary markets are showing distress levels of 10.0 percent or higher.  

CRED iQ’s early signals of upcoming distress include loans that have been added to the servicer’s watchlist for credit-related issues.  Issues include weak financial performance, low occupancy, high tenant rollover, upcoming maturity risk among other reasons to be flagged as possible troubles. Some notable loans that were added to the watchlist in October include:

  Grand Central Plaza (Office:  622 Third Avenue, New York City) – $260 million, low debt service coverage ratio. 

  Republic Plaza (Office:  370 17th Street, Denver) – $235 million, maturity.

  JW Orlando Grande Lakes (Resort Hotel:  Orlando) – $593 million Senior Loan plus $53 million in mezzanine debt, maturity.

The office, retail/mixed-use and lodging segments drove the highest levels of distress rates in October as measured by property type. These segments had a major impact on market distress rates across the country.   The WeWork bankruptcy filing announced last week has been impacting distress levels in markets such as New York City all year. 

The Washington, D.C., market (the No. 2 gateway market at 11 percent)  was impacted by office distress. Examples include 1615 L Street NW, a 417,383-square-foot office building, which transferred to the special servicer for imminent monetary default

San Francisco (the fourth most distressed market in the primary/gateway cohort) saw continued turbulence across office, retail and lodging. The struggling 2023 has included the transfer of the iconic Hilton San Francisco and Hilton Parc 55 for imminent monetary defaults of a combined valuation of over $1.5 billion. On the retail front, the $1.2 billion Westfield San Francisco was transferred for imminent monetary default earlier this year.

In summary, Minneapolis holds on to the number one position in our study as it has for well over a year, expanding its distress rate to 51.5 percent (up from 33.6 percent in our June report). Hartford, which leads the secondary cohort, comes in at second place overall with a 31.4 percent distress rate. Chicago and Charlotte are neck-and-neck with 19.7 percent and 19.6 percent respectively earning them third and fourth place overall in our study.

Mike Haas is the founder and CEO of CRED iQ.