The multifamily sector in the CMBS market has experienced a sharp increase in distress, with delinquencies nearly tripling in just six months.

Surge in Delinquencies

CRED iQ’s latest report reveals that multifamily CMBS loans marked as delinquent or in special servicing jumped by 185% from January to late June. This significant rise marks the most substantial increase among all commercial real estate asset classes during this period, indicating widespread financial strain beyond value-add players facing floating-rate loan issues.

Widespread Impact

The refinancing environment remains difficult, presenting significant challenges for multifamily investors. While fix-and-flip borrowers using CRE CLOs have already encountered high default rates, distress is now extending to multifamily investors with longer-term, fixed-rate CMBS loans. This suggests that even investors with more conservative strategies are under financial pressure.

Detailed Analysis

Despite talks of potential rate cuts, substantial short-term reductions seem unlikely. Ryan Severino, chief economist at BGO, suggests that even if the Federal Reserve reduces rates in September, the cuts may not be sufficient to alleviate refinancing challenges. This is particularly concerning as 35% of multifamily loans are set to mature within the next 18 months.

Key Takeaway

Potential rate cuts are unlikely to bring significant short-term relief, leaving refinancing challenges unresolved. In June, over 7% of multifamily CMBS loans were distressed, slightly below the overall CMBS distress rate of 8.6%. The broader commercial real estate market has also seen record-breaking distress rates for the fourth consecutive month, with multifamily loans showing a distress rate of approximately 13%.