Dive Brief:
- At the end of the third quarter of 2024, more than $14.2 billion in apartment value was classified as distressed, a net decrease of $124 million compared to the end of the second quarter, according to a new report from MSCI.
- Potentially distressed apartment property value fell from $81 billion at the end of Q2 to $75.9 billion at the end of Q3, according to MSCI. Overall, $260.9 billion is classified as potentially distressed across CRE, with apartments having the highest amount of distress in the commercial real estate universe.
- This was the ninth consecutive quarter where the property value of CRE distress — considered by MSCI as those in bankruptcy, default, court administration, publicly reported issues and CMBS loans transferred to special servicers — outpaced workout agreements. New distress outpaced workouts by $4.3 billion.
Dive Insight:
Other indicators of distress painted an improving picture.
The multifamily distress rate fell 2 basis points to 11.0% during October, according to data firm Cred iQ. However, the sector’s problem loans jumped 840 bps from 2.6% in January, which was the sharpest increase across all CRE segments. Overall, the commercial real estate distress rate inched up five bps to 9.6% in October, which set another consecutive record high.
CMBS delinquencies fell nine bps to 3.24% in October, according to data firm Trepp. Six months ago, the rate was 1.33%, and a year ago, it was 2.64%
However, the Trepp CMBS multifamily special servicing rate rose 14 basis points to 6.21%. Six months ago, the rate was 5.10%, and a year ago, it was 3.14%.
With many distressed loans being resolved before they go back to the bank or hit the market, many investors seem ready to get back to business as usual.
“I think a lot of people have just decided that there's not going to be this massive distress,” said Alexander R. Westra, managing partner at Charleston, South Carolina-based apartment owner Lakeland Capital. “So it's been a lot more competitive to buy properties this year.”
However, other firms have ramped up in anticipation of opportunities arising from troubled loans. In July, San Antonio, Texas-based apartment owner, manager and developer The Lynd Group and Declaration Partners, a New York City-based investment firm, formed a programmatic partnership to invest in multifamily asset workouts and distressed situations, according to the release.
“Many times, the borrower and lender have reached an impasse where sharing facts and dealing in reality become a challenge,” Adam David Lynd, president and CEO of the company, said in the release. “Our role is to bring a fresh set of facts with a clear path forward to devise a better result than foreclosure and disputes where both sides practice mutually agreed destruction.”
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