Midyear Data Shows Spike in CRE Modifications and Foreclosures
This week, our CRED iQ research team explored trends in workouts and resolutions for CRE securitized loans so far in 2024. We wanted to understand how the continued elevated interest rate environment is impacting how distressed loans are ultimately resolved. Our team compared special servicers’ workout strategies from June 2024 with December 2023 and analyzed how the first six months 2024 has played out.
Our analysis compared workout strategies across $71 billion in loan balances (6,018 loans) in December 2023 with $81 billion (6,359 loans) in June 2024. The top four workout strategies used by special servicers from this data set include successful resolutions, foreclosure or deed in lieu of foreclosure, modification or loan extensions, and return to the master servicer.
CRED iQ notes that 45.9 percent of specially serviced loans were labeled as “resolved” in December 2023 compared to only 40.5 percent of loans in June 2024. Similarly, loans with the special servicer headed for a full payoff dropped from 1.1 percent in December to 0.7 percent in June 2024.
The second most common strategy, “foreclosure,” saw a notable increase when comparing December 2023 to June 2024, rising from 9.2 percent of all loans to 12.2 percent, a 33 percent increase in six months. Real estate owned strategies dropped in the period from 7.2 percent to 6.4 percent. Note sale workouts declined from 0.8 percent to 0.4 percent in June 2024.
Maturity extensions and loan modifications, or the so-called “extend and pretend” category, continued to grow in strength as this strategy spiked from 6.8 percent in December 2023 to 11.2 percent in June 2024, a 65 percent increase.
A notable workout example
The Point at Caldwell Station, a 297-unit multifamily property, is backed by a $56.3 million senior commercial real estate collateralized loan obligation and $15 million of mezzanine debt. The loan was scheduled to mature in March 2024 with a final extended maturity date of September 2027, if all three extension options are exercised. The loan failed to pay off at its initial maturity date, and the special servicer is pursuing foreclosure.
Built in 2023 and located in the North Charlotte submarket of Charlotte, the asset was appraised for $101.5 million (as is) with a stabilized value of $115 million. Stabilization was anticipated for October 2024 with a debt service coverage ratio of 0.89 and occupancy of 93 percent. The collateral was not leased at underwriting and remained vacant as of March 2024.
Mike Haas is the founder and CEO of CRED iQ.
