Dive Brief:

• Multifamily’s distress rate increased 40 basis points to 12.9% from December to January, according to a report from data firm Cred iQ. By comparison, apartments, which have the second highest amount of problem loans in commercial real estate, had a 2.6% distress rate in January 2024.
• Multifamily commercial mortgage-backed loan delinquencies increased for apartments, inching up four bps to 4.62% in January, according to a report from data firm Trepp. A year ago, the rate was 1.91%.
• However, the servicing rate for CMBS apartment loans fell 30 basis points in January to 8.42%, according to Trepp. A year ago, multifamily’s special servicing rate was 2.34%.

Dive Insight:

The Cred iQ total distress rate for commercial real estate rose 90 basis points to 11.5%. The firm’s special servicing rate increased by 50 basis points to 10.3%.

However, the picture from Trepp was mixed across CRE. The CMBS servicing rate posted its first decline since December 2023, falling two bps to 9.87%. The overall delinquency rate decreased by one bps to 6.56% in January. 

As distress picks up, some apartment investors are finding deals. In January, Dallas-based S2 Capital announced the acquisition of a distressed portfolio of five properties in Dallas and Nashville and Knoxville, Tennessee, formerly owned by troubled Austin-based syndicator GVA Real Estate Group.

Others are gearing up to buy properties that may face challenging financing situations.

In January, Denver-based Platte Canyon was formed with $30 million in capital from funds managed by Culver City, California-based private equity firm Inceptiv to invest in middle-market multifamily value-add opportunities in five markets to start. On a levered basis, Platte Canyon will acquire $750 million to $1 billion of distressed opportunities, according to founder Brennen Degner.

However, the total amount of distressed apartments on the market is far less than many apartment owners anticipated.

“We haven't seen a lot of distress, frankly,” said Brad Hill, president, chief investment officer and incoming CEO at MAA, on the Memphis, Tennessee-based REIT’s fourth-quarter earnings call earlier this month.

Hill said MAA would continue to focus on buying new properties in lease-up, where some developers are motivated to sell and can get similar returns whether they transact before or after stabilization.

“We do think that those will continue to face a bit of pressure, just given the amount of supply that's out there,” Hill said.

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