Hartford and Charlotte Lead MSAs in Distressed Loan Count
CRED iQ’s research team set out to examine the distress in today’s securitized commercial real estate ecosystem. We wanted to explore geographic trends as well as the causes or triggers that earned the distressed designation and focused upon the top 50 metropolitan statistical areas (MSAs) for this analysis.
Across the top 50 MSAs, our team calculated the CRED iQ distress rate for each market (which combines delinquent and/or specially serviced loans). Hartford, Conn., logged the highest level of distress at 36.5 percent followed by Charlotte (22.4 percent), Birmingham (20.2 percent), San Francisco (19.2 percent) and Portland, Ore. (17.4 percent). To provide perspective, the overall distress rate for all loans across every market was 7.35 percent as of February 2024.
Some of the strongest performing MSAs include Salt Lake City operating at 0 percent distress today, while San Diego, Sacramento, Seattle and Boston all have less than 1 percent of their loans in distress.
Among the scope of distressed loans in our analysis, one of the largest consists of the $384 million Nema San Francisco, which is backed by a 754-unit multifamily property. Cash flow at the San Francisco high-rise property was unable to cover expenses, leading to imminent default. Consequently, the loan transferred to the special servicer in August 2023. The asset value decreased from $534.6 million ($720,955 a unit) at underwriting to $328.8 million ($436,074 a unit) in October 2023. Despite 91.9 percent occupancy, its debt service coverage ratio was reported below break even at 0.81.
With the geographic concentrations in mind, our team took a step back and evaluated the triggers/causes that landed each loan in distress. Sixteen percent of all the loans are current with another 7 percent within the grace period or 30 days late. Meanwhile a whopping 40 percent are past their maturity dates and have stopped making monthly payments.
On the other side, 13.4 percent are past their maturity dates, but still make their monthly mortgage payments on time. Measuring delinquency during loan terms prior to maturity dates, CRED iQ calculated that 23.7 percent of the distressed loans are reporting between 30 days to 120-plus days delinquent.
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, and upcoming maturity risk among other reasons to be flagged as possible troubles.
Mike Haas is founder and CEO of CRED iQ
