Finance  ·  CMBS

CRE Distress Rate Rises to 8.35%, Led by Multifamily

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CRED iQ’s research team completed its monthly top-down evaluation of payment statuses reported for each loan, along with special servicing status. April saw CRED iQ’s distress rate reach an all-time high of 8.35 percent for all property types, a 74 basis point jump from 7.61 percent in March.

The April numbers broke the previous distress rate record set just a month earlier and was significantly affected by one large loan which impacted the segment distress rate in a fairly dramatic fashion.   

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Multifamily saw a whopping distress rate increase — from 3.7 percent in the March data to 7.2 percent in April. The rise is mostly attributable to a $1.75 billion loan ($561,000 a unit) backed by Parkmerced, a 3,221-unit multifamily property in San Francisco. 

An imminent non-monetary default caused the loan to transfer to the special servicer with the looming maturity date of December 2024. The loan has also suffered from underperforming credit metrics with a below break-even debt service coverage ratio (DSCR) of 0.47 and 83.5 percent occupancy.  

It’s important to note that CRED iQ’s distress rate factors in all CMBS properties that are securitized in conduits and single-borrower large loan deal types.  CRED iQ tracks Freddie Mac, Fannie Mae, Ginnie Mae and CRE CLO loan metrics in separate analyses.  

Parkmerced consists of a mixture of townhouse and tower apartment units spanning 152 acres. Approximately 17 percent of the units were leased by students at origination in 2019, as the property is across the street from San Francisco State University. Parkmerced was underwritten for $2.1 billion ($655,076  per unit) in September 2019.

The retail sector’s third consecutive distress rate increase earned them the No. 2 slot, while relinquishing their leadership position from the March report. The retail segment distress rate increased from 9.5 percent in March to 11.9 percent, achieving a record level for the segment.    

The hotel segment notched the third highest month-over-month increase – gaining a full percentage point from 7.7 percent to 8.7 percent. Meanwhile, the office segment logged its fifth consecutive monthly increase by a modest 3 basis points, landing just behind retail at 11.7 percent.   

Meanwhile, the industrial and self-storage segments continued their virtually nonexistent, sub-1 percent distress rates.

CRED iQ’s distress rate aggregates the two indicators of distress — delinquency rate and specially serviced rate — yielding the distress rate The index includes any loan with a payment status of 30-plus days or worse, any loan actively with the special servicer, and includes nonperforming and performing loans that have failed to pay off at maturity. 

Nearly a third of the distressed loans are current or within the grace period. The largest category was nonperforming, matured at 36.8 percent. The closely watched performing matured category represents 9.2 percent of the loans. 

Mike Haas is the founder and CEO of CRED iQ