Dive Brief:
- New data from CRED iQ shows rising issues among apartment commercial mortgage-backed securities loans. Multifamily, with a 13% distress rate, has seen its rate more than double since February. Of the $992 million across 180 newly distressed loans in July, 96% was tied to apartments.
- Trepp data also reveals increasing problems with CMBS loans. The multifamily CMBS servicing rate increased 16 bps month over month to 8.39%, according to the data firm. Six months ago, it sat at 8.14%, and one year ago, it was at 8.37%.
- With a wave of multifamily loans in Ohio, Texas and New York becoming 30 days delinquent, the multifamily CMBS delinquency rate rose 46 basis points MOM to 7.69%, according to Trepp. Six months ago, it sat at 6.94%, and one year ago, it was at 6.15%.
Dive Insight:
Despite increases in Trepp’s multifamily indicators, the five largest newly delinquent loans in July were backed by office, hotel, retail and specialty commercial real estate properties.
The largest apartment loan to go delinquent was the $53.8 million note backing the 262-unit The Riley in Richardson, Texas, according to information Trepp shared with Multifamily Dive. The property went into servicing earlier this year after losing its tax exemption status, according to Morningstar.
CRED iQ identified the $84 million Weston Medical Center Apartments loan in Houston as the largest apartment loan driving distress in July. Delinquencies at Ariza Forest View in Santa Rosa Beach, Florida ($61 million loan), Mirasol in Las Vegas ($53.1 million), Solaire Bethesda in Bethesda, Maryland ($49.6 million) and The Sophia Apartments in Dallas ($38.9 million) also contributed to apartment issues.
CMBS loans represent a smaller slice of the multifamily debt market, making it easy to overestimate their importance. However, the issues that surfaced among distressed properties with this securitized debt can show fissures across the industry.
CRED iQ Founder and CEO Michael Haas told Multifamily Dive that he sees rising operating expenses as a common issue pushing multifamily CMBS loans into distressed situations. He pinpointed year-over-year increases of as much as 100% across insurance and property tax, which pulled the debt service coverage ratio below 1.0x on 39 of the 98 multifamily loans evaluated by CRED iQ.
“Maturity stress is the second big theme,” Haas said in emailed comments. “Ten MF loans are already past their stated maturity date without payoff, another 31 mature within the next 12 months, and comments repeatedly reference borrowers unable to close refinancing on time and negotiating short maturity extensions.”
Deferred maintenance, code violations and fire and casualty events, including a unit fire at one Florida property and a fire-suppression system failure in another, triggered issues with other loans.
Finally, floating-rate loan exposure is also a huge issue. “Loans with adjustable-rate IO [interest-only] structures are seeing rate cap costs eat into debt service coverage,” Haas said.
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