Overall U.S. Office Distress Rate Eclipses 17%

The CRED iQ research team evaluated payment statuses reported for each loan securitized by CMBS financing at the end of 2024, along with special servicing status, as part of our monthly distress update. In this special year-end report, we add several new dimensions to get a sense of how distress rates evolved.  

The CRED iQ overall distress rate added 60 basis points (bps) in December, logging its fourth straight record high to reach 10.6 percent. The CRED iQ delinquency rate increased to 8.6 percent from 7.7 percent in the November print. Similarly, the CRED iQ special servicing rate added 70 bps to reach 9.8 percent.  

The office segment saw its largest overall distress rate increase of the year — rising from 15.5 percent in our November data to 17.2 percent in December. Office maintains a healthy lead as the property type with the most distress and posted the largest distress gain in December across all property types.  

Taking over the No. 2 spot from retail, multifamily notched a distress rate of 12.5 percent, an increase of 130 bps since November. The multifamily sector started 2024 with a distress rate of just 2.6 percent.  

Retail was one of three property types that improved its distress rates. The retail sector’s distress rate was reduced by 60 bps to 10.9 percent, but is the third most distressed commercial real estate asset class. 

Hotels added 130 bps to log a distress rate of 9.9 percent in December — landing in the No. 4 slot.  

Industrial and self-storage saw modest reductions in their tiny distress rates of 0.8 percent and 1.6 percent, respectively.  

Payment status breakdown

Our team explored how the payment status of CMBS loans evolved over the course of 2024. Some takeaways:

Some 19.4 percent of loans were current in December of 2023, versus 13.5 percent as we finished 2024.

Combining current with “late but in the grace period” and “late by less than 30 days delinquent,” 2024 watched this “wider current” metric sink from 27.3 percent to 19.6 percent, a 770-bps decrease.

Combining performing matured with nonperforming matured, December 2023 logged 49.3 percent while December 2024 logged 62.2 percent in the maturity category. 

Geographic review 

We wanted to add a geographic perspective to this special year-end report. Our analysis shows a very close three-way race for the most distressed metropolitan statistical area in the U.S. The top three MSAs and their market distress rates are Rochester, N.Y., at 33.8 percent; Providence, R.I (including New Bedford and Fall River, Mass.) at 38.7 percent; and Minneapolis-St. Paul (including Bloomington, Minn.) at 38.1 percent.  

On the other end of the scale, Sacramento Calif., San Diego and Columbus, Ohio, were the least distressed in our study, logging distress rates of 0.9 percent, 1.4 percent and 1.4 percent, respectively.   

Historical perspective

Finally, we extended the date ranges to show distress trending dating back to July 2022 to gain a wider viewpoint as we jump into 2025.  

Office loan highlight 

The $205.4 million single-borrower large loan (SBLL) ($347 a square foot) backed by the 2400 Market Street office property in Philadelphia defaulted on the December 2024 maturity, resulting in a performing matured loan status. Servicer commentary indicates a maturity extension is in process.   

The 591,878-square-foot mid-rise office property is in Philadelphia’s Market Street West submarket. Built in 1929 and renovated in 2018, the property was valued at $317.3 million ($536 a square foot) at underwriting in October 2021. The property was most recently 99 percent occupied and had a debt service coverage ratio of 0.91.

Analysis methodology

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

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 delinquent or worse, any loan actively with the special servicer, and includes nonperforming and performing loans that have failed to pay off at maturity.

Mike Haas is the founder and CEO of CRED iQ.