Delinquency rates for mortgages backed by commercial properties increased during the fourth quarter of 2024, according to the Mortgage Bankers Association’s (MBA) latest commercial real estate finance Loan Performance Survey. The share of loans that were delinquent increased for some property types, particularly office, lodging, retail and multifamily, but decreased for industrial properties.

Among capital sources, CMBS saw the highest loan delinquency rates at 5.3%. At the other end of the spectrum, loans from Fannie Mae and Freddie Mac saw a 0.6% delinquency rate.

“The delinquency rate for commercial mortgages increased during the final three months of 2024, with increases across most capital sources and property types,” said Mike Fratantoni, MBA’s SVP and chief economist. “The challenges facing different sectors vary – with office properties perhaps facing the most challenging combination of weaker fundamentals and stubbornly high interest rates. However, despite the current conditions, other property types continue to benefit from a relatively strong economy.”

Cap rates in the single-tenant net lease sector continued to rise in the fourth quarter of 2024 for
the 11th consecutive quarter of increases across all three sectors, The Boulder Group reported. Single-tenant cap rates increased to 6.52% (up two basis points) for retail, 7.78% (up three bps) for office and 7.23% (up eight bps) for industrial.

“Sustained high interest rates and commentary from the Federal Reserve following the December meeting
continues to negatively impact the market,” said Randy Blankstein, president, The Boulder Group. “Overall cap rates rose to 6.76%, representing a three-bp increase from the previous quarter.”

Transaction velocity in 2024 remained significantly below the peak of 2021, yet Q4 experienced an uptick of investor activity. The spread between asking and closed cap rates remained flat or decreased for net lease properties.

“The bid-ask spread compression indicates a gradual alignment between buyer and seller expectations, something that was not experienced in early 2024,” said Boulder Group partner Jimmy Goodman. If transaction velocity continues, the supply backlog of net leased assets will decrease, the report stated.

Commercial mortgage delinquencies increased in the third quarter of 2024, according to the Mortgage Bankers Association’s (MBA) latest Commercial Delinquency Report. All lender types saw delinquencies rise during the quarter. 

Based on the unpaid principal balance (UPB) of loans, delinquency rates for each group at the end of Q3 were as follows: 

• Banks and thrifts (90 or more days delinquent or in non-accrual): 1.24%, an increase of 0.09 percentage points from Q2 2024; 

• Life company portfolios (60 or more days delinquent): 0.46%, up 0.03 percentage points from Q2; 

• Fannie Mae (60 or more days delinquent): 0.56%, up 0.12 percentage points from Q2; 

• Freddie Mac (60 or more days delinquent): 0.39%, up 0.01 percentage points from Q2; and 

• CMBS (30 or more days delinquent or in REO): 5.15%, up 0.33 percentage points from Q2. 

“The share of the balance of delinquent commercial mortgages increased for every major capital source during the third quarter of 2024,” said Jamie Woodwell, MBA’s head of commercial real estate research. “The increases varied by capital source and were driven by the particularities of each individual loan and property. Stresses differ by property type and subtype, geographic market and submarket, loan type and vintage, borrower type and more.” 

Noble Investment Group purchased two acres off Interstate 295 for $2 million in order to develop a four-story, 13,550-square-foot StudioRes by Marriott, an extended-stay hotel with 124 rooms. It bought the land from Harmony Farms of Jacksonville.

The new Marriott is planned for Collins Town Center with an address listed as 8045 Parramore Road. The job is expected to cost $9.9 million.

The Jacksonville Business Journal reports Noble Investment Group is a real estate investment manager that specializes in the travel and hospitality sector. It purchased the Courtyard Jacksonville Beach Oceanfront for $26.1 million in July. McKibbon Hospitality of Tampa will manage the beachfront hotel and currently manages 32 hotels for the owner.

The hospitality group expects to develop 50 StudioRes properties across several submarkets in major U.S. cities. Marriott says the StudioRes prototype is the company’s most affordable cost-per-key product to develop and build.

Cap rates in the single-tenant net lease sector increased for the ninth consecutive quarter within all three major property types, according to The Boulder Group’s 2nd Quarter Net Lease Research Report. Single-tenant cap rates increased to 6.47% (up five basis points) for retail, 7.67% (up seven bps) for office and 7.10% (up eight bps) for industrial.

“Elevated interest rates and limited 1031 exchange and institutional buyer activity is the cause of the consistent upward trend in cap rates,” said Randy Blankstein, president, The Boulder Group. “The lack of transactions when compared to recent years is causing property supply to rise without a path to clear the market inventory.”

With a significant number of properties on the market, most investors now believe the current market strongly favors buyers over sellers in terms of compromising on asset pricing. This applies especially to assets that are more highly commoditized, like dollar stores.

“With limited competition, buyers are targeting assets in either income-tax-free states or areas with strong demographic drivers,” said John Feeney, SVP, The Boulder Group. “Secondary buyer motivations include strong real estate fundamentals with credit tenants.”

In the second half of 2024, the pace of cap rate expansion should slow, according to the report. However, cap rates are still expected to rise, given the increase in the supply of net lease properties.

The volume of maturing CMBS loans is “quite significant,” Trepp says in a new report. Given this volume as well as recent history, the firm expects to see an increase in loan modifications. 

About $131.3 billion in outstanding, non-defeased CMBS loans that are current on payments are scheduled to mature by the end of this year, according to Trepp. That tally rises to $321.4 billion through 2027, with about 27% consisting of maturing office loans. 

2023 saw a dramatic rise in CMBS loan modifications, due largely to lower property values and a higher interest rate environment. “Instead of refinancing old loans into new ones as loans came up on their maturity dates, often loans would undergo modifications, which mainly include extensions and any other amendments to loan terms,” Trepp reports. 

Already in 2024, the first quarter saw $2.5 billion in newly modified loans, and April saw another $1.1 billion in CMBS loan modifications. “CMBS delinquency rates are also continuing to climb, and unless interest rates are able to come down some by the time these loans hit their maturity dates, more modifications could be expected to pop up in these figures as 2024 continues,” according to Trepp. 

Cap rates in the single-tenant net lease sector increased for the eighth consecutive quarter within all three major sectors in the first quarter of 2024, the Boulder Group reported. Single-tenant cap rates increased to 6.42% (up seven basis points) for retail, 7.60% (up five bps) for office and 7.02% (up two bps) for industrial.

“Cap rates in the first quarter of 2024 represented the highest levels since 2014 for single-tenant retail properties,” said Randy Blankstein, president, The Boulder Group. “However, cap rates for single-tenant retail and industrial assets remain lower than their 20-year historical average by approximately 40 basis points.”

Added Boulder Group partner Jimmy Goodman, “Elevated interest rates continue to impact transaction volume which is lower than prior years. A lack of 1031 exchange buyer activity is resulting in an increased supply of net lease properties on the market.”

Single-tenant property supply increased by more than 9% over Q4 2023 levels. With limited transactions occurring, properties continue to be added to, and stay on, the market. Despite the headwinds in the market, certain sellers including merchant builders or owners with upcoming loan maturities look to meet market pricing, according to The Boulder Group.

The delinquency rate among U.S. CMBS climbed meaningfully in January from December, rising almost 10% to 4.61%, Kroll Bond Rating Agency (KBRA) reported. The total delinquent and specially serviced loan rate—i.e. the distress rate as measured by KBRA across its $317.3-billion rated universe of CMBS–also jumped more than 11% to 7.39%.  

 CMBS loans totaling $3.4 billion were newly added to the distress rate this reporting period, and more than half (53.7%, $1.8 billion) stemmed from imminent or actual maturity default. The office sector represented the largest portion (74.7%, $2.5 billion) of newly distressed loans, with the sector’s distress rate climbing 233 basis points to 10.8% from 8.55% in December, driven largely by 280 Park Ave. in Manhattan and One Market Plaza in San Francisco.  

The mixed-use sector came in second, accounting for 11.3% ($385.2 million) of newly distressed loans, followed by retail at 11.1% ($376.4 million). Conversely, multifamily experienced a month-over-month decline of 59 bps in its distress rate.  

The decrease was primarily driven by the liquidation of the Veritas multifamily portfolio securing GSMS 2021-RENT, which resulted in a reported 43% loss on the original securitized balance. However, the loss includes a substantial reserve holdback that could reverse much of the losses if released, according to KBRA. 

Pictured: 280 Park Ave.

The first 49 units are ready for tenants at RISE Bartram Park, a 297-unit multifamily development in Jacksonville. The $60 million project is being developed by a team made up of Origin Investments and RISE.

Upon its completion in March, the 281,000-square-foot development will include one, two and three-bedroom units consisting of seven total buildings with three, four-story apartment buildings including a community clubhouse. 

Amenities include two resort-style swimming pools, a bar, cabana, grilling stations, and a sprawling, manicured lawn. The clubhouse includes a test kitchen and fireplace. Additional amenities include a 24-hour fitness center, secure package delivery, pet park and spa, yoga room and flexible workstations.

Development partners include RISE General Contractors, Charlan Brock Architects and engineering firm ETM. It’s the seventh development in Florida for RISE.