Dive Brief:
- Delinquency rates for apartment commercial mortgage-backed securities rose 53 basis points to 7.12% in October, topping 7% for the first time since December 2015, according to a report from data firm Trepp.
- Multifamily delinquencies were nearly double the 3.24% rate they sat at six months ago. A year ago, they were 6.57%, according to Trepp.
- After falling in September, the Trepp CMBS delinquency rate for commercial real estate jumped 23 basis points to 7.46% in October. A year ago, it was 5.98%. The delinquent balance rose from $1.1 billion to $44.6 billion
Dive Insight:
Multifamily wasn’t alone in seeing rising delinquency rates in October. All five major property types experienced increases, with the office sector posting the biggest jump at 63 basis points to an all-time high of 11.76%.
The office sector had set all-time delinquency highs earlier this year at 11.08% in June and 11.66% in August, before retreating 50 basis points in September.
Office issues are presenting opportunities for multifamily firms seeking conversion opportunities.
A record-breaking 180,585 apartments are in development from repurposing office spaces, hotels and other buildings, per a RentCafe report.
Seven out of 10 new converted apartments delivered in 2024 came from class A buildings, while offices with fewer amenities (class B and C) accounted for just 28% and 1%, respectively.
However, some conversions have faced issues recently, adding to apartment distress totals.
For instance, the City Club Apartments CBD Cincinnati went into receivership after Atlanta-based ACRE Credit Investments filed a foreclosure lawsuit in June against CCA CBD Cincinnati LLC, an affiliate company of Detroit-based City Club Apartments, according to the Cincinnati Enquirer.
Jonathan Holtzman, founder and CEO of Detroit-based City Club Apartments, opened City Club Apartments CBD Cincinnati in 2018 after converting it from office space, according to the Cincinnati Business Courier. The outlet reported that financial troubles have forced Holtzman to walk away from multiple deals over the past two years.
Conversions in other cities from different developers are also running into issues. Baltimore-based Chasen Cos.’ One Calvert Plaza office tower conversion went into default on a $34 million loan for the building in June 2024.
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