MBA: CRE Mortgage Debt Hits $4.7T, Office Delinquencies Climb

The U.S. commercial mortgage market hit $4.7 trillion in Q2 2024, with delinquencies increasing across several key investor groups.

Jordan B. & Han-Gwon Lung
September 12, 2024

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Good morning. Commercial mortgage delinquencies saw an uptick in Q2 2024, according to the Mortgage Bankers Association's latest report.

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AI ANGST

MBA: U.S. Commercial Mortgage Debt Reaches $4.7T in Q2 as Office Delinquencies Rise

The U.S. commercial mortgage market hit $4.7 trillion in Q2 2024, with delinquencies increasing across several key investor groups.

By the numbers: The Mortgage Bankers Association (MBA) report analyzed delinquency rates for five key investor groups holding over 80% of commercial mortgage debt. Here’s how they performed in Q2 2024:

Banks and thrifts: 1.15% of loans were 90+ days delinquent or in non-accrual, a 0.12% increase from Q1.
Life insurance companies: Delinquencies fell to 0.43% (60+ days delinquent), a decrease of 0.09% from Q1.
Fannie Mae: The delinquency rate remained steady at 0.44% for loans 60+ days delinquent.
Freddie Mac: Rates rose slightly to 0.38% (60+ days delinquent), up by 0.04%.
CMBS: Delinquencies rose significantly to 4.82% for loans 30+ days delinquent or in REO, an increase of 0.47%.

Focus on office loans: Office loans, which make up $740 billion of total commercial mortgage debt, are under more scrutiny. According to Trepp, in August, the office sector’s special servicing rate hit 11.91%, its highest since 2013, with $1.4 billion in loans transferred to special servicing.

New troubled debt: The multifamily special servicing rate also spiked in August, rising 60 basis points to 5.71%, the highest in nine years. Retail's rate slightly increased to 10.92%, while lodging ticked up to 7.42%. Industrial properties, however, remained stable, with rates under 1%.

➥ THE TAKEAWAY

Zoom out: The broader CRE market is grappling with rising servicing and delinquency rates throughout 2024. While some lenders attempt to restructure troubled loans, others are reclaiming properties as distress escalates. A handful of syndicators with floating-rate loans are especially feeling the pressure, as declining property values and unmet equity targets force lenders to take control.

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✍️ Editor’s Picks

Fight another day: Steward Health Care is nearing a bankruptcy settlement with Medical Properties Trust (MPT) that would transfer $395M and over a dozen hospitals to new operators.
Got loans? Sand Capital is actively purchasing loans collateralized by commercial properties throughout the US, focusing on retail assets like strip, power, and grocery-anchored centers. (sponsored)
Unexpected trends: August inflation readings were below expectations at 2.5%, but core inflation remains higher than expected at 3.2%, while energy was down to 4.0%.
Investment exodus: Equity investment in Opportunity Zone projects dropped by nearly 70% in 2Q24, from $1.3B to $446M YoY, reflecting ongoing investor caution.
Risky riches: High-yield municipal bonds backed by luxury real estate projects are delivering 7.2% returns, outperforming investment-grade bonds by over 5%.
Rate drop frenzy: Mortgage rates fell to 6.29% last week, stimulating a sudden frenzy of homebuyer activity as the 30-year rate dropped a full 14 bps.
Fund of the day: Lone Star Funds closed a $2.7B commercial real estate fund, Lone Star Real Estate Fund VII, that will target Europe, North America, and Japan.

🏘️ MULTIFAMILY

Buyout boost: Blackstone (BX) is selling $1.05B in commercial mortgage bonds to fund its $10B acquisition of AIR Communities, adding to a previous $2.95B CMBS sale.
Warm invitation: Invitation Homes invested $216 million in build-to-rent projects over 60 days, backed by a new $3.5 billion credit facility, as part of its $1 billion expansion plan for 2024.
Pricey purchase: Chicago's Waterton purchased the 310-unit Avant at the Arboretum in Lisle for $77.5M, or around $250K per unit. Seller JVM made a tidy $8.9M profit on the sale.
Multifamily bargain: Advanced Real Estate paid $62M for the 210-unit Canvas LA in Temple-Beaudry or a little less than $300K per unit.
Affordable advancement: Pittsburgh aims to require 10% of new multifamily units to be affordable housing, priced for families earning 50% of the area median income.

🏭 Industrial

Desert power: KBC Advisors completed Empire 101, a 153.15 KSF industrial project in Peoria, Arizona, with 21 dock doors, 32" clear heights, and parking for 144 vehicles.
Warehouse wars: Trade group NAIOP is urging members to ask California Governor Newsom to veto a bill restricting warehouses over 250 KSF, citing potential economic bottlenecks.
Tampa tanking: The Tampa Bay industrial market is struggling, as net absorption drops 75%, vacancies rise to 7.1%, and rents decline.

🏬 RETAIL

Luxury expansion: According to JLL data, luxury retailers are snapping up prime storefronts and expanding despite limited space, with over 360 KSF leased from 2023 to 2024 alone.
Denver splash: Bridge33 Capital continues its acquisition spree with a nearly $100 million purchase of a Denver-area retail portfolio, following Site Centers' broader asset offloading.

🏢 OFFICE

Office trends unveiled: Business leaders increasingly view office space as a value driver rather than just a cost center, with many planning to expand footprints despite hybrid work trends.
Midtown bargain: Joshua Zamir's firm is set to buy 60% leased 360 Lexington for $65M, a huge discount from its prior $180M sale price in 2019.
Legal leasing spree: Unsurprisingly, New York City leads global law firm leasing with 1.4 MSF, reflecting growing demand for high-quality offices.

🏨 HOSPITALITY

Artful oasis: Motel One partners with ALP.X and Büschl Group for an 8-story, 214-room hotel and condo project in South Florida’s Wynwood.
Extended stay shuffle: Clearview Hotel Capital purchased the Residence Inn Seattle East/Redmond from Blackstone (BX) for $34M, or $190K per room.

📈 CHART OF THE DAY

Weakening labor market raises the risk of a not-so-soft landing

August's jobs report from the Bureau of Labor Statistics showed mixed signals for the economy reports CoStar News. The labor market improved from July's weak performance, with 142,000 jobs added, but job growth continues to cool, with the three-month average falling for the fifth straight month.