Multifamily Drives CRE Distress Rate to Another Record High
The CRED iQ team evaluated payment statuses reported for each loan securitized by CMBS financing along with special servicing status as part of our monthly distress update.
The overall CRED iQ distress rate increased from 8.8 percent to 9.1 percent in August, achieving a sixth straight record high. CRED iQ’s special servicing rate came in flat month-over-month at 8 percent, while the CRED iQ delinquency rate increased by 66 basis points to 6.8 percent in August.
The multifamily sector continued its upward rise in distress, jumping to 11 percent from July’s 8.4 percent, a dramatic 260-basis point increase in one month. Just eight months before, the multifamily distress rate stood at 2.6 percent. The multifamily loan segment surpassed retail to secure the second-highest level of distress among all CRE segments.
The office segment saw an increase in its distress rate in August — adding 80 basis points to reach 13 percent, while maintaining its lead as the sector with the highest overall distress level.
Retail improved by reducing its distress rate from 11.8 percent to 10.6 percent in the latest CRED iQ data — settling in at third place. The hotel segment added 60 basis points to 8.4 percent.
Uncharacteristically, the industrial segment saw a sharp increase from 0.8 percent to 4.6 percent — the largest increase among all property types. This increase is largely attributable to the default of one single-borrower large loan (SBLL) portfolio in the Nvip 1-15 deal valued at $2.18 billion.
Meanwhile, self-storage continued to perform with nearly zero distress — coming in at 0.1 percent.
Looking at distressed loan payment status, 31.7 percent of the loans are current, up significantly from July’s 21.2 percent. An additional 2.1 percent of loans were considered late (but in the grace period) and 3.6 percent of loans were late (but less than 30 days delinquent). Combining these three metrics, 37.4 percent of all loans were current, late within the grace period, or less than 30 days delinquent.
Nonperforming matured loans saw a reduction from 39 percent to 30.9 percent, as did 90-plus days delinquent debt dropping from 14.2 percent to 10.9 percent. Performing matured loans increased from 12.9 percent in July to 16.2 percent in August.
Loan highlight
Nvip 1-15, a $2.18 billion ($13 per square foot) SBLL loan backed by a 138 industrial and office/flex property portfolio, defaulted last month after failing to pay off at maturity. The interest-only loan also has $1.96 billion ($119 a square foot) in additional debt. The loan has three, one-year maturity extension options representing a fully extended maturity of August 2027. Servicer commentary indicates the borrower provided written notice to exercise the first maturity extension option.
The 16.4 million-square-foot portfolio consists of properties throughout California, Florida, Virginia, Texas, Maryland and Washington. The portfolio was 98.5 percent occupied and performing with a debt service coverage ratio of 0.73. The collateral was valued at $4.2 billion ($256 a square foot) at underwriting in June 2022.
Mike Haas is the founder and CEO of CRED iQ
