Dive Brief:
- Multifamily delinquencies for commercial mortgage-backed securities loans are slated to double to $1.3 billion in 2024, exceeding their pandemic peak, according to a report from Fitch Ratings.
- Apartments will be challenged by heightened levels of new supply, slowing revenue growth and higher expenses, which will limit property net cash flow, according to Fitch.
- Throughout commercial real estate, U.S. CMBS loan delinquency rates sat at 2.25% as of November 2023. Fitch projects that number to jump to 4.50% in 2024 and 4.90% in 2025, as it evaluated factors like more maturity defaults from higher interest rates, tighter access to capital, fewer special servicing resolutions, less new issuance and increased loan modifications.
Dive Insight:
In all, more than $31.2 billion — totaling 1,473 conduit and agency Fitch-rated U.S. CMBS loans — is scheduled to mature in 2024. Another $37.9 billion, or 2,437 loans, are on pace to mature in 2025. By comparison, $26.5 billion matured between October 2022 and December 2023.
The maturing loans are concentrated in three sectors: retail, office and multifamily. Overall, refinancing activity was better than expected in those sectors in 2023. But Fitch noted that those rates declined in the last six months of the year, indicating what it called “mounting challenges.”
While Fitch indicated the refinancing climate should improve in 2025 as interest rates decrease, there is still a staggering amount of apartment loans maturing in the next five years. Trepp said that $1 trillion in total multifamily debt is due to mature through 2028.
Soft landing
Sandy Schmid, director of acquisitions and development for Beverly Hills, California-based StarPoint Properties, thinks concerns about multifamily loan maturities are a little overhyped.
“In the global financial crisis there was a lot of distress, but it wasn’t as bad as some predicted,” Schmid said. “I would say the same thing is going to happen here because we still do have a very solid economy. Unemployment is still historically low. We still have job creation.”
That resilient economy will be one thing that helps soften the loan maturity risk in 2024, according to Schmid. “There will also be some softening in the interest rate environment, which will assist that refinance issue,” he said.
But even if the Federal Reserve drops interest rates in the near future, apartment owners will need to bring money to the table to refinance, according to Darren Fisk, CEO of Denver-based Forum Investment Group.
“I'm of the mindset that we've had such a large run up that the Fed is not going to also say, ‘Hey, let's drop our rates 100 basis points,’” Fisk said “If they do, it's going to be, ‘Hey, let's start with 25 basis points.’ So I think there is going to be gap financing needed.”
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