Multifamily logs biggest jump in distress in 18 months

Dive Brief:

Multifamily distress outpaced all other commercial real estate sectors in February, jumping 80 basis points from January to more than 3%, according to a report from real estate data firm Cred iQ.
Cred iQ, which aggregates the payment and special servicing status for each loan to arrive at the distress rate, said the multifamily sector posted its largest increase in distress in 18 months in February. Office still outpaced all asset classes with a distress rate of 11%.
The percentage of troubled loans across CRE fell four basis points in February to 7.35% from 7.39%, partially because the status of a large self-storage portfolio went from delinquent to current. The rate has fallen modestly in three of the last four months.

Dive Insight:

The news wasn’t all bad for the apartment sector in February’s servicing reports. Data firm Trepp reported that the multifamily commercial mortgage-backed special servicing rate dropped 12 bps to 2.22%. The apartment delinquency rate decreased 10 basis points to 1.81%

For the overall CRE universe, servicing rose 19 basis points to 7.14%, marking the first time it has surpassed 7% in 2-½ years, according to Trepp. Delinquencies rose five basis points to 4.71%, led by the office sector, which jumped 33 basis points to 6.63%.

Apartment leaders are paying attention to issues in other sectors. On his company’s fourth quarter 2023 earnings call, MAA Chief Investment Officer Brad Hill said the Memphis-based REIT is monitoring owners with holdings in other segments, such as retail or office.

“Some of them have big exposures to multifamily development and some of them have liquidity needs,” Hill said.

MAA is currently having discussions with those sponsors. “We're certainly hopeful that will yield some [acquisition] opportunities,” Hill said.

But apartment executives say they have yet to encounter a large number of troubled properties hitting the market in their own sector.

“We are not seeing significant distress in the system,” said Ben Schall, CEO of Arlington, Virginia-based AvalonBay Communities, on the REIT’s fourth quarter 2023 earnings call.

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