Dive Brief:

• A growing number of apartment loans backed by commercial mortgage-backed securities are facing challenges and helping to drive a higher overall servicing rate for all property types, according to recent reports from Trepp.
• The servicing rate for apartment CMBS loans jumped 39 basis points to 3.28% from May to June, according to Trepp. In addition, multifamily delinquencies rose 13 basis points to 1.59%.
• For commercial real estate, the overall delinquency rate rose 28 basis points to 3.90%, driven by the hotel sector. The CRE servicing rate jumped 31 basis points in June to 6.42%. That was the fifth increase in a row and the third largest in 2023. Six months ago, the special servicing rate for CRE was 5.17% and it was 4.91% a year ago.

Dive Insight:

Though the multifamily servicing rate jumped from May to June, it paled in comparison to the 81-basis point increase to 7.24% in the office sector. Trepp said that is the highest rate in the segment since 2017. It has risen 323 basis points since the start of this year. 

Even if problems are worse in the office sector, they can still affect multifamily.

“Maturity defaults in the office sector are placing additional stress on special servicers as the appetite for refinancing wanes,” according to Trepp.

For apartment owners, refinancing is hard enough with the interest rate increases that have occurred over the last year. “It is obviously not the most advantageous time to refinance,” said Michael Becker, the co-founder and principal of Dallas-based SPI Advisory.

If it's harder to refinance, it could be more likely that properties end up becoming delinquent or going to special servicing. In other cases, owners may be forced to sell.

In May, Houston-based Three Pillars purchased the 426-unit Chateaux Dijon Apartments in the Galleria section of Houston from Austin-based owner InvestRes, which acquired the property in 2018. 

“The seller’s loan was due in June and they were unable to refinance due to the fact that they didn’t grow income,” said George Goyal, the CEO of Three Pillars Capital Group. “They could have refinanced, but they would have had to put money in.”

But refinancing options still exist for apartment owners. Becker has been successful in refinancing multiple properties, which could be more difficult for owners in other sectors.

“Fannie, Freddie and HUD provide liquidity to our space,” Becker said. “Office buildings have a much different situation.”

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