CRE Loan Distress Concentrated in Specific Markets, Sectors

According to CRED iQ proprietary commercial mortgage-backed securities (CMBS) loan analytics, commercial real estate loan distress remains concentrated in specific metropolitan markets and property types as of February.

Spanning conduit and single-borrower large loan deal structures across 100 U.S. core-based statistical areas (CBSAs), CRED iQ’s distress rate framework captures loans in special servicing, 30-plus-day delinquency, and real estate owned status — providing investors and lenders a comprehensive view of market-level credit risk.

The national distribution reveals a bifurcated landscape: A handful of smaller secondary and tertiary markets post extreme distress rates driven by single large loan exposures, while major gateway metros — including Chicago, Denver and San Francisco — contend with sustained structural headwinds in office and hotel loan pools.

Minneapolis: The most distressed large CBSA

Minneapolis-St. Paul-Bloomington ranks as the most distressed major metropolitan area tracked by CRED iQ, with a February distress rate of 54.3 percent. Office loans lead the distress profile at 72.7 percent, compounded by hotel loans at 92.2 percent — reflecting both remote-work disruption to suburban office demand and uneven hospitality recovery in the Twin Cities. The market’s elevated rate has persisted across multiple CRED iQ monthly readings, signaling structural, not cyclical, credit deterioration.

Chicago, Denver and San Francisco: Persistent office headwinds

Three of the nation’s largest metros have distress rates that remain elevated above the national average. Chicago (22.7 percent distressed overall) is driven by a hotel distress rate of 61.1 percent and office at 30.9 percent, reflecting continued downtown leasing pressure and deferred corporate footprint decisions. Denver (22.4 percent) shows office distress at 38.5 percent, compounded by a mixed-use rate of 63.1 percent tied to downtown redevelopment projects. San Francisco (21 percent) — long a bellwether for post-pandemic office dislocation — records hotel distress at 30.6 percent and notable multifamily exposure at 49.4 percent, as Class A residential borrowers face refinancing stress from 2021–2022 vintage debt.

New York, Washington, D.C., and Los Angeles: Below the major market average

Three of the four largest U.S. metros track materially below the national distress leader. New York (11.6 percent) reflects broad diversification across office, multifamily, retail and hotel sectors — with no single property type dominating the distress profile. Washington, D.C., (10.9 percent) shows office distress at 16.9 percent as hybrid work stabilizes federal leasing demand. Los Angeles (10 percent) posts mixed-use as its primary driver at 27.6 percent, with office (14.5 percent) and manufactured housing (9.8 percent) contributing secondary pressure.

Office: Still the most distressed property type

At a 21.2 percent average distress rate across tracked CBSAs, CMBS office loans remain the single largest source of credit risk in the CRED iQ distress universe. Markets including Hartford, Conn. (75.9 percent office distress), Topeka, Kan. (100 percent), and Louisville, Ky. (72.4 percent) reflect concentrated exposure to single-tenant or suburban assets facing lease-up challenges. Even gateway markets like Denver (38.5 percent) and Chicago (30.9 percent) have not fully absorbed post-pandemic demand destruction.

Hotel: Selective recovery, elevated secondary market risk

Hotel CMBS distress averaged 12.3 percent across the CRED iQ CBSA universe, with wide dispersion. Minneapolis leads with 92.2 percent hotel distress, followed by Rochester, Minn. (100 percent) and Atlantic City, N.J. (78.9 percent). The common thread: Leisure-dependent or drive-to markets have recovered unevenly, while urban business-travel hotel pools still suffer from suppressed group and corporate demand.

Retail: Midwest secondary markets drive the rate

Retail distress averaged 11.1 percent — a notable drag concentrated in Midwestern and secondary metros. Youngstown, Ohio (76.8 percent), Oklahoma City, Okla. (66.1 percent), and Boulder, Colo. (93.7 percent) carry outsize retail distress often tied to mall anchors, power center vacancies, and single-asset loan structures. Coastal primary market retail, by contrast, has shown relative resilience within CRED iQ’s tracked pool.

Multifamily: Rate stress creating 2021–22 vintage pressure

Multifamily CMBS distress averaged 6 percent nationally, but CRED iQ data highlights pockets of concentrated stress. Greeley, Colo. (86.2 percent), Macon, Ga. (53.7 percent), and New Haven, Conn. (52.3 percent) lead the multifamily distress rankings. These markets share a common profile: floating-rate or bridge loans originated at peak valuations in 2021 and 2022 that now face stressed DSCR coverage at current benchmark rates.

Industrial and self-storage: The resilience story

Industrial CMBS loans average just 2.4 percent distress across CRED iQ’s tracked CBSAs, with meaningful exposure only in markets like Rochester, Minn. (23.5 percent), Pittsburgh (21.5 percent) and Salt Lake City (28.8 percent) — often tied to older, functionally obsolete warehouse assets rather than modern logistics product. Self-storage averaged a negligible 0.05 percent, reinforcing its status as the most credit-stable property type in the CMBS conduit universe.

Mike Haas is the founder and CEO of CRED iQ.