CMBS Delinquencies Surpass 6% As Cracks Form In Multifamily Debt
Office distress continues to loom large over the CMBS market, but stress is growing in the housing market.
The overall CMBS delinquency rate climbed to 6.57% at the end of 2024, up from 4.51% a year prior, according to Trepp. Office buildings continue to drive troubled loan volumes — increasing 90% in 2024 to $17.7B — but multifamily properties are increasingly feeling the squeeze from rising operating costs with limited interest rate relief.
Multifamily delinquencies jumped 75% year-over-year to around $2.8B, Trepp reported.
A total of $38.1B in CMBS loans were delinquent as of December, up 41% from the start of 2023. Just over $17B in office CMBS debt was delinquent, 11% of the total office CMBS debt market and ahead of the previous record of 10.7% that was set in 2012.
The level of stress would typically portend discounted sales, but banks have thus far been willing to modify loans and work with sponsors to avoid realizing losses, Orest Mandzy, managing editor of Trepp’s Commercial Real Estate Direct magazine, wrote in a recent note.
“Unfortunately for those distressed buyers, higher delinquency rates haven’t ultimately translated into the bloodbath they have been hoping for,” he wrote. “The supposition is that at some point the delinquent loans will become available at favorable pricing for distressed buyers, it just hasn’t happened — at scale — yet.”
Two of the largest loans to move into delinquency toward the end of 2024 were bundled portfolios, while another $370M loan covering the 1.2M SF AMA Plaza in Chicago was reclassified as delinquent after falling behind on its debt service payments.
Beacon Capital Partners acquired the property for $470M in 2016 and refinanced it with a floating-rate loan in 2021. The company said it was working with the lender to keep the property when the loan moved into special servicing in August.
A $506M portfolio of 31 apartment properties across New York City was also moved back into delinquency. JPMorgan Chase CMBS Trust had moved the loan to performing matured last year after the property owners, A&E Real Estate, made debt service payments even after the loan's maturity date.
Those payments have since stopped, and the portfolio loan has moved back to nonperforming. A&E Real Estate assembled the properties for a combined $777M from 2015 to 2017.
Another $1.5B loan for the 3,221-unit Parkmerced apartments in San Francisco accounts for 60% of total CMBS multifamily delinquencies, Mandzy said in an email Friday.
When excluding those two loans, multifamily delinquencies total $492M, "A virtual blip in the grand scheme of things," Mandzy said.
Debt maturities also pushed a portfolio of five CMBS loans that originally totaled $350M and covers San Francisco’s 225 Bush office tower into delinquency. The 583K SF property, originally the headquarters for Standard Oil, is only 43% occupied, according to Morningstar Credit.
It was moved into special servicing in November after the balloon payment due at maturity was missed, and the owner, Kylli Inc., is working on a loan modification to hold on to the property, according to January Morningstar commentary.
