Dive Brief:

• The servicing rate for multifamily loans financed with commercial mortgage-backed securities jumped 34 basis points to 3.04% in March. Twelve months ago, it sat at 1.66%. Multifamily accounted for 10% of the loans transferred into special servicing, according to Trepp.
• The delinquency rate for multifamily CMBS loans rose eight basis points to 1.91%, according to Trepp. Twelve months ago, it sat at 1.53%.
• Across commercial real estate, the number of loans moving into servicing rose 37 basis points in March to 5.55% — the largest month-over-month increase since August 2020. Office and retail were responsible for 35% of those transfers. The overall delinquency rate for commercial real estate decreased by three basis points to 3.09% in March 2023. However, Trepp sounded alarms about issues in the office space, which it said “saw a sizeable uptick” in delinquency last month as it jumped 23 basis points to 2.61%.

Dive Insight:

Already some high-profile multifamily properties have gone into servicing over the past six months. After Veritas Investments, The Chetrit Group and Blackstone saw properties face issues, and Laguna Point Properties fell behind on a $329 million loan backing a portfolio of more than 1,000 apartments in Los Angeles, according to The Real Deal. 

As the number of multifamily loans falling into delinquency or going into servicing picks up, CMBS originations are also facing challenges due to interest rate increases and volatility in the banking sector. 

“The first quarter has seen some of the lowest activity in the CMBS/CLO market I can recall, which we attribute to rising interest rates and volatility in CRE valuations,” Ross Pemmerl, chief credit officer at UC Funds, a Boston-based debt provider that specializes in bridge loans told Multifamily Dive. “This combination of interest rates and market uncertainty results in investors requiring larger spreads, pushing underlying spreads, in turn squeezing returns.” 

Despite issues this year, Pemmerl expects originations to rebound eventually. 

“Ultimately, we believe rates will come back in and markets will settle, but think it will take some time before those factors filter down into more volume from the CMBS and CRE markets,” he said. “We believe volume will pick up in the second half of the year, as markets settle, although 2023 overall will likely be one of the lower volume years we’ve seen since the Great Recession.”

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