Multifamily Distress Jumps 100 Basis Points in July

The multifamily sector built upon its 185 percent growth in its distress rate — as reported last month — by adding 100 basis points in July to 8.4 percent. Just seven months ago, that rate was 2.6 percent, and multifamily is now operating at the third highest level of stress among all commercial real estate segments. These figures include all multifamily securitized with CMBS financing.  

The office sector saw an increase in its distress rate in July — from 11.5 percemnt in the June print to 12.2 percent last month, taking over the lead from retail as the highest level of distress across all CRE segments.  

Retail notched a one basis point increase to 11.8 percent, settling into the number two slot. Both the industrial and hotel segments saw modest decreases in distress levels at 0.8 percent and 7.8 percent, respectively. Self-storage maintained its tight range — hovering near zero, as it has done all year.  

When looking at distressed loan payment status, 21.2 percent of the loans are current — a reduction of 4 basis points from the July report with 1.1 percent classified as late (but in the grace period) and 5.7 percent late (but less than 30 days delinquent).

The largest distressed category was non-performing matured loans at 39 percent — recording a second consecutive increase of 200 basis points — followed by 90-plus days delinquent at 14.2 percent  (flat to last month’s report), and then performing matured loans at 12.9 percent, down slightly from 13.5 percent in June.

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.

As mentioned in our July report, our analysis exposes a meaningful gap between the distress and watchlist rates which could imply that the special serving and delinquency percentages may be likely to grow. 

Loan highlight

The 1.4 million-square-foot Bank of America Plaza office property in Downtown Los Angeles is backed by a $400 million loan ($279 a square foot). The interest-only loan is one of four pari-passu loans that are scheduled to mature in September 2024. Imminent maturity default led to the loan being transferred to special servicer in July 2024. The loan remains current in payment as of July.

The central business district office tower was constructed in 1974, and renovated in 2009. The asset most recently performed with a debt service coverage ratio of 2.26 and had 79.5 percent occupancy. At underwriting in June 2014, the property was valued at $605 million, or $422 a square foot.

Mike Haas is the CEO and founder of CRED iQ.