Dive Brief:

• Multifamily commercial mortgage-backed loans going into servicing rose 12 basis points to 3.25% in November, according to data and technology provider Trepp. One year ago, the rate sat at 2.33%.
• Multifamily CMBS delinquencies fell 18 basis points to 2.46% in November, according to Trepp. In November 2022, they came in at 1.81%. 
• Another firm, commercial real estate data, analytics, and valuation company CRED iQ, said the multifamily distress rate fell from 5.1% in October to 4.1% in November. Overall, its commercial real estate distress rate, which includes delinquent and specially serviced CMBS loans, fell 5 basis points to 7.52%.

Dive Insight:

For commercial real estate, the CMBS special servicing rate increased by 4 basis points to 6.84% in November, with the office sector leading the way at 6.08%, according to Trepp. The CRE delinquency rate dropped five basis points to 4.58%, though office rose above 6%.

The problems in other sectors are hitting lenders hard. “The banks have a lot of exposure to real estate, particularly sectors like office,” Jay Hiemenz, president and chief operating officer of Scottsdale, Arizona-based developer Alliance Residential, told Multifamily Dive. “Not only did the interest rates impact them, but the fundamentals really had been deteriorating post-COVID in the remote work world. So, they’ve got a lot of exposure.”

Even if multifamily’s distress levels pale in comparison to other commercial sectors, most notably office, issues in the CRE universe make it harder for multifamily executives to access debt, according to Hiemenz.

“They can't just allocate all their dollars to apartments, although we'd be happy to let them,” Hiemenz said. “They have exposure to retail, hotels, industrial and all the other sectors. But office probably is the one, if you ask most of the domestic banks, that is creating the biggest drag on their portfolios.”

Ultimately, many observers believe apartments can avoid the worst of the distress cycle because underlying demand is still strong.

“Unemployment is still historically low,” Sandy Schmid, director of acquisitions and development for Beverly Hills, California-based StarPoint Properties told Multifamily Dive. “We still have job creation. The economy continues to surprise with its resilience. So I don't think it's going to be as bad as people think it might get. I think this rising tide of the economy is going to really soften the loan maturity risk that we're looking at for 2024.”

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