Commercial Real Estate Delinquencies Are Rising

The recently released April Trepp commercial mortgage-backed securities report says the CMBS delinquency rate rose 38 basis points to 7.03%. This surge marks the highest increase since January 2021. Multifamily and lodging delinquencies contributed to the increase.

Financial forecasters see a glut of delinquencies looming on the horizon in the warehouse, multi-family, and hospitality sectors that could have a huge impact on the availability of financing, avenues for property dispositions, and investor strategies ranging across the commercial real estate industry.

While rents on income-producing properties have risen significantly, asking prices don’t match lending valuations. This has sellers reluctant to trade current assets because they can’t find suitable replacement properties – prices are too high and banks, skittish about the market, are not matching valuations.

But despite concerns over increasing delinquencies, banks are willing to hold on to questionable mortgages because there is no replacement debt. If banks were to buckle down and clear the deluge of “bad loans” off their books, their balance sheet will be zeroed out.

If delinquencies continue to surge and defaults rise, essentially forcing the hand of loan-holders, many experts in the mortgage lending field predict big corporations will step in and buy up these properties. A move that further consolidates the control of real property assets.