September CMBS delinquency rises to 8.02%, led by office and hotel loans

CMBS delinquency rose 17 basis points to 8.02% in September, according to Trepp data reported by Multifamily Dive. The five loans Trepp identified as powering the increase were office and hotel credits. They included a $1.1 billion eight-property studio-and-office portfolio in Los Angeles, a $470 million two-tower office complex in Houston, a $280 million beachfront hotel in Santa Monica, California, a $230.1 million office loan in Denver and a $208.9 million office loan in Silicon Valley.

In August, $11.6 billion of the $635.82 billion in securitized multifamily loans was delinquent, per Trepp. The total divides into three buckets: $75.48 billion of private-label securities at a 7.69% delinquency rate, $518.99 billion of Freddie Mac multifamily debt at 0.8%, and $41.35 billion of CRE CLOs at 3.88%.

Freddie Mac holds about 82% of the securitized multifamily debt in Trepp's count but roughly 36% of the delinquent dollars. Private-label securities hold about 12% of the debt and about half the delinquent dollars. Trepp put income-producing CRE debt at $5.12 trillion at midyear, as this publication reported; the securitized multifamily total is a modest share of a much larger refinancing problem.

"Defaults are getting worse," Justin Ashcraft, president of Northern Ridge Capital, told Multifamily Dive, adding that the delinquency rate is the highest since late 2020. Most groups expect another increase in rates from the Fed this year, he said, leaving "no relief on the horizon anytime soon."

Ashcraft said pricing requirements have "shifted quite dramatically from when the loans were originated to today," and that a take-out cap rate that once looked realistic "is now hopelessly out of reach." Expectations for market conditions are not aligning with rents, he said, leaving properties unable to generate the cash flow needed to clear lenders' and investors' debt service coverage ratios.

Ashcraft expects many upcoming foreclosures, which he said would negatively impact multifamily values. Northern Ridge is concentrating on auction financing, on his view that "the ones that come out of this situation the best are the ones sitting on the sidelines with an unused war chest."