Although delinquencies for CMBS backed by retail loans reached heights that were exceeded only by those of the lodging sector during the pandemic, since then retail CMBS has improved in a number of metrics, reported Trepp. March’s overall decline in the CMBS delinquency rate was led by retail, which saw a 47-basis-point decrease to 5.56%. 

“This comes even as the outstanding balance of retail loans has remained relatively flat, indicating resilience in issuance amid softening performance,” wrote Trepp’s Thomas Taylor. 

In mid-2020, the percentage of retail-backed CMBS loans reached 28.8%, compared to the pandemic-era peak of 25.7% for all loans. As of March 2024, 24.9% of all loans are on watchlists, up 199 bps month-over-month, compared to 19.6% of retail loans, which saw a 22-bp monthly increase. 

“As of March 2024, retail remains the second-worst performing asset by delinquency and special servicing rate (only outpaced by office in both), while it boasts the lowest watchlist rate,” wrote Taylor. Driving retail’s overall performance in delinquency and special servicing are loans backed by regional malls, while loans tied to superregional, neighborhood and community shopping centers are performing relatively well. 

However, Taylor reported, “retail’s distress metrics continue to improve monthly,” with delinquencies down 129 bps year-to-date, and it remains the third-largest securitized asset class by balance. It’s topped only by office and multifamily, both of which are seeing worsening distress metrics, with delinquencies up by 482 bps and 227 bps YTD, respectively.  

Prime multifamily metrics continued increasing in the fourth quarter of 2023, CBRE said Friday. Unlevered IRR targets, going-in cap rates and exit cap rates all experienced a slight increase in Q4. Going forward, improved underwriting metrics are expected to lead to increased multifamily investment activity in 2024 once the Federal Reserve begins cutting interest rates.

The average going-in cap rate for prime multifamily assets has increased by 170 basis points to 5.06% since Q1 2022, surpassing the pre-pandemic average by 85 bps. The spread between going-in and exit cap rates reached its lowest point at 11 bps in Q4, “indicating a positive spread as long as economic conditions remain stable,” according to CBRE. Cap rates have already inverted in Chicago and Washington, DC, with New York, Philadelphia, Phoenix, San Francisco and Seattle approaching parity.

“We are seeing a cautious market sentiment with a slight increase in cap rates and underwriting metrics for prime multifamily assets,” said Matt Vance, head of multifamily research for the Americas at CBRE . “The rise in going-in cap rates suggests investors’ demand for higher returns, while the positive spread between going-in and exit cap rates indicates overall market stability. As the Federal Reserve prepares to cut interest rates, we anticipate increased multifamily investment activity in 2024 driven by improved underwriting metrics.”