Fitch Ratings’ overall U.S. CMBS delinquency rate climbed 22 basis points to close 2024 at 2.98%, up from 2.76% in November and 2.31% a year ago. The increase was fueled by a surge in office delinquencies and reduced resolution volume.

Five large office loans with a balance greater than $60 million became newly delinquent in December, totaling $1.03 billion and accounting for 50% of overall new delinquencies and 81% of new office delinquencies. These were largely responsible for a 92-bp increase in office CMBS delinquencies, which ended 2024 at 7.18%.

New 60+ day delinquency volume increased to $2.08 billion in December 2024 from $1.76 billion in November, driven mainly by several larger balance office loans. Office loans accounted for the largest share of new delinquencies (61%, $1.27 billion) followed by retail (15%, $309 million), mixed use (12%, $258 million) and multifamily (5%, $92 million). Term defaults accounted for 51% ($1.06 billion) of new delinquencies, while maturity defaults represented 49% ($1.02 billion).

Resolution volume decreased to $586 million in December from $1.48 billion in November, below the year’s monthly average of $1.05 billion.

Pictured: Worldwide Plaza in New York City, which backs one of five newly delinquent large office loans.

Kennedy Wilson has closed senior construction loans for the development of three student housing projects totaling $184 million at the University of Wisconsin – Madison, University of North Texas and University of California, Berkeley.

These recent deals, completed through Kennedy Wilson’s debt investment platform, expand the student housing loan portfolio to $850 million to develop approximately 8,800 beds. An additional $1 billion of new student housing loans totaling 8,200 beds are being evaluated.

“We are seeing student housing continue to outperform many other asset classes due to strong operating fundamentals and the scarcity of new development in high-barrier markets adjacent to educational institutions that are continuing to grow enrollment,” said Thomas Whitesell, head of the debt investment group at Kennedy Wilson. “We are pleased to build on our long track record of student housing loan originations to become one of the most active student housing lenders in the country.”

U.S. banks reported a 20% sequential increase in total high-volatility commercial real estate (HVCRE) loans in the second quarter of 2024 following a four-year low balance in Q1, according to S&P Global Market Intelligence. The aggregate HVCRE loan balance for US banks stood at $34.93 billion during the quarter, up from $29.11 billion in Q1 but down 5.2% from $36.83 billion a year ago 

HVCRE loans in the second quarter accounted for 0.24% of the sector’s total risk-weighted assets, up four basis points from a quarter earlier. 

Dublin, GA-based Morris Bank reported the highest ratio of HVCRE loans to risk-weighted assets among top-tier US banks with at least $1 billion in total assets. The Morris State Bancshares Inc. subsidiary reported $265.3 million in total HVCRE loans during the quarter, or 19.9% of its risk-weighted assets, S&P Global said. 

With $2.09 billion in total HVCRE loans as of June 30, Goldman Sachs retained its position as the top HVCRE lender for the third consecutive quarter. The total loan balance represented a 1.0% quarter-over-quarter increase and accounted for 0.3% of the company’s risk-weighted assets. 

Regulators define high-volatility commercial real estate ADC loans as credit facilities that primarily finance or refinance acquisition, developments or constructions of real properties. They’re used to provide financing to acquire, develop or improve properties into income-producing ones that are dependent on future income, sales or refinancing for repayments. 

The distressed property market is just beginning to unfold, with significant challenges still ahead. On October 22, hear experts from Trimont, Greystone, Transwestern and more discuss the rising tide of distressed assets, upcoming CMBS maturities, and stricter underwriting practices. Gain insights into what lies ahead as we transition into 2025 at Connect Distressed Investment & Finance at the Luxe on Sunset in LA.

The largest U.S. banks remain in the best position to weather further loan performance declines for office and multifamily, two commercial real estate sectors that Fitch Ratings cites as having different trajectories compared to other property types. Although the drop in office loan performance represents a long-term structural shift in demand with loss rates yet to peak, multifamily declines appear more cyclical, according to group credit officer Julie Solar. Distress in both sectors has yet to play out, though.

“Migration into non-performing loans has been more muted for multifamily in comparison to office, but the upward trend represents a change for a category that had proven extremely stable over time,” said Solar. “Decreasing inflationary pressures, particularly insurance costs, and rental rate increases would provide relief to some troubled multifamily borrowers, while potential rate cuts would be especially beneficial in the rent-controlled space.”

Despite holding a majority of CRE loan balances, larger banks are much more diversified and better positioned to withstand expected credit deterioration, particularly in office loans. While the largest banks account for over half of non-performing CRE loans as of June 30, those banks with assets between $100 billion and $250 billion have a higher percentage of problem loans, according to Fitch.

The rating agency noted that office vacancies are also worse than multifamily, with an estimated 14% of office real estate vacant versus around 8% for multifamily. Large regional banks have both the most problem multifamily loans and the highest percentage of multifamily NPLs at 1.68%

Large-scale loans helped drive significant credit changes in newly delinquent loans, cured loans and modified loans during July, Trepp reported. For example, the office CMBS delinquency rate rose 54 basis points last month to 8.09%, with a single loan–the $670-million securitization on 230 Park Ave. in Midtown Manhattan–representing about one-third of new delinquencies in the sector.

In the multifamily sector, several large loans also became delinquent or reverted to delinquency during July, according to Trepp. One of these was the $221-million MFP portfolio, which became nonperforming last November, returned to performing status in April and then flipped back last month. Multifamily delinquencies rose 27 bps to 2.63% as July ended.

Conversely, the $124.2-million Gansevoort Park Avenue loan backed by a Manhattan lodging property was sent to the special servicer in June for imminent monetary default but then turned back to performing matured balloon in July, taking the loan out of the pool of delinquent CMBS deals. This helped drive a 15-bp decrease in hotel delinquencies to 6.17%. Retail delinquencies also declined in July, dropping by 28 bps to 6.14%.

An estimated $332 billion in potentially troubled commercial real estate debt is scheduled to mature this year, approximately one-quarter of a total of $1.3 trillion potentially troubled debt coming due between now and 2033, Newmark reported. Although loans tied to office properties comprise more than half the 2024 tally at $184 billion, the apartment sector accounts for nearly a third of the total at $106 billion. 

Moreover, the gap between potentially troubled office maturities and those tied to multifamily loans will shrink in the years to come. In fact, from 2028 through 2033 the apartment sector will contribute a larger share of potentially troubled maturities than office, although the dollar volumes of pending maturities in each sector will be smaller compared to this year’s. All told, Newmark reports that $542 billion of office maturities through 2033 are potentially troubled, compared to $550 billion in multifamily. 

Ranked against either office or apartments, retail runs a distant third when it comes to potentially troubled maturing loans, with industrial an even more distant fourth. “The high office volume results from most loans being underwater,” according to Newmark’s latest United States Multifamily Capital Markets Report. “The distribution of LTV ratios for multifamily [is] more favorable overall, but the greater size of the multifamily market and the concentration of lending during the recent liquidity bubble drive nominal exposure.” 

Detroit, Chicago and Denver have the highest risk scores among the top 25 metro areas for maturing multifamily loans, Kroll Bond Rating Agency (KBRA) said in a new report. KBRA weighed apartment supply and demand metrics from several sources to derive a risk scale between 1 and 25 for each metric, with one being the most favorable and 25 the worst. 

“In 2024 and 2025, 8.6% of multifamily’s principal balance for the largest 25 MSAs is scheduled to mature ($15.9 billion),” KBTA reported. However, “the percentage of loans maturing in the period can vary meaningfully by MSA. Maturing loans in MSAs with high risk scores could face greater refinancing challenges relative to those with lower scores.” 

For each of the three highest-risk metro areas, low employment growth was a factor, KBRA reported. Detroit and Chicago also exhibited negative population growth along with a relatively higher Home Ownership Affordability Monitor (HOAM) Index, as measured by the Federal Reserve Bank of Atlanta. Denver’s high risk score stemmed mainly from supply issues, while its vacancy rate (8.8%) and percentage of inventory under construction (11.3%) are both higher than the national average. 

At the other end of the spectrum was Las Vegas, which had the lowest risk score, albeit only one-third better than the next two lowest—Houston and San Diego, which had the same score (48).  

Las Vegas benefited mainly from its demand metrics, including current and forecast strong employment and population growth, as well as a favorable HOAM ranking. Houston also benefited from positive employment and population growth, while San Diego, meanwhile, had more positive supply metrics. 

January saw $834.0 million in CMBS loans resolved at a loss, with $382.3 million in losses total, carrying an average loss severity of 45.84% for the month, reported Trepp. This was an increase in loan loss volume from December 2023, where losses totaled $132.9 million, although December’s loss severity was greater.

The 12-month average disposed balance moved to $247.6 million in January, compared to the $193.4 million that was seen in December, while the 12-month moving average loss severity stood at 52.66% in January, slightly down from the 54.20% seen in the prior month.

Trepp reported the largest loan to resolve at a loss in January was the $447.6-million Veritas Multifamily Portfolio Pool loan. The loan is collateralized by more than 60 multifamily properties in the San Francisco area. The bulk of the properties were constructed in the early 1900s, although one was built in 1890 and another as late as 1976.

In all, just under $3 billion of CMBS loans have been resolved at a loss over the past 12 months with a total of $1.56 billion in losses, according to Trepp.

SVP Francisco Nacorda of Mag Mile Capital completed $23,650,000 in CMBS loans for three hotels as part of a Michigan select service hotel portfolio on behalf of the borrower, Stellar Hospitality.

The three transactions cover a Staybridge Suites in Grand Rapids, a Homewood Suites in the Detroit suburb of Novi and a TRU Hotel by Hilton in Sterling Heights, also within the Detroit metro area.

“These were difficult deals with numerous challenges including a condominium structure for one of the hotels, and less than 12 months of operating history for the other two,” said Nacorda.

“Additionally, there was a recent cash flow disruption due to labor strikes in the metro Detroit market complicating matters. However, our team was able to work with our network of lenders to pay off the existing loan and cash out the borrowers existing equity with a long-term, non-recourse loans.”

For comments, questions or concerns, please contact Paul Bubny

Hunt Real Estate Capital provided two Freddie Mac conventional loans totaling $18.3 million to refinance two multifamily properties located in Michigan for the same sponsor, ROCO Real Estate LLC. Both loans have a 10-year term with a 30-year amortization period.

“The borrower is a repeat Hunt Real Estate Capital and Freddie Mac client that is well versed in a range of commercial real estate and multifamily investing,” said Josh Messier, managing director at Hunt Real Estate Capital. “Both properties are performing well and are located in close proximity to both employment centers and major roadways.”

Hunt provided a $9.3-million conventional Freddie Mac Multifamily loan to refinance Waverly Place Apartments, a 228-unit community in Kalamazoo, MI.

Additionally, Hunt provided a $9-million conventional Freddie Mac Multifamily loan to refinance Bancroft Luxury Apartments in Saginaw, MI. It’s a renovated historical property with 152-units situated in two six-story apartment buildings.

Pictured: Waverly Place Apartments.

For comments, questions or concerns, please contact Paul Bubny