Dive Brief:

• As a group of loans across multiple states moved to 30-day delinquent status in September, the multifamily commercial mortgage-backed securities delinquency rate rose 35 basis points to 8.04%, according to Trepp.
• The multifamily CMBS special servicing rate rose 17 basis points to 8.54% in September, according to Trepp. The overall CRE special servicing rate hit its highest level since February 2013, rising seven basis points in September to 11.49%
• Multifamily delinquency and servicing rates have followed different trajectories over the past year. Six months ago, the delinquency rate was 7.15% and a year ago it was 6.59%. Six months ago, the special servicing rate was higher at 8.75%. One year ago, it was 8.2%.

Dive Insight:

Distress mounted across commercial real estate in September, with the overall CMBS delinquency rate increasing 17 bps to 8.02%, according to Trepp.

On the delinquency side, a $1.1 billion eight-property studio-and-office portfolio loan in Los Angeles; a $470 million two-tower office complex in Houston; a $280 million beachfront hotel loan in Santa Monica, California; a $230.1 million office loan in Denver; and a $208.9 million office loan in Silicon Valley powered the increase, according to Trepp.

CMBS still represents a relatively small piece of the securitized apartment loans in distress, according to Trepp. In August, $11.6 billion out of $635.82 billion of securitized multifamily loans were delinquent.

Private-label securities, with a 7.69% delinquency rate, hold $75.48 billion of multifamily debt. Freddie Mac, with $518.99 billion of multifamily debt outstanding, has a 0.8% delinquency rate. Commercial real estate collateralized loan obligations have $41.35 billion of debt and a 3.88% delinquency rate, according to Trepp.

“Defaults are getting worse,” Justin Ashcraft, president of Northern Ridge Capital told Multifamily Dive in emailed comments. “This is the highest it’s been since late 2020. Additionally, most groups are expecting another increase in rates this year from the Fed. So there’s no relief on the horizon anytime soon.”

Ashcraft said pricing requirements have “shifted quite dramatically from when the loans were originated to today.” What was a realistic take-out cap rate when loans were originated “is now hopelessly out of reach,” he said.

He said expectations for market conditions aren't aligning with rents, leaving properties unable to generate cash flow to meet debt service coverage ratios that are acceptable for lenders and investors.

“I imagine we’re going to see a lot of upcoming foreclosures which will negatively impact the value of multifamily,” Ashcraft said. “We’re currently focusing a lot on auction financing as the ones that will come out of this situation the best are the ones sitting on the sidelines with an unused war chest.”

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