- Loans with a DSCR of 1.30 can withstand a 23% NOI decline before hitting break-even; at 1.60, even a 38% drop in NOI is manageable.
- Multifamily outperformed industrial, office, and retail, showing greater NOI stability and resilience during downturns.
- Apartments saw 61.5% NOI growth post-GFC, compared to 26.7% for core commercial properties as of December 2023.
Moody’s 2024 NOI index report reveals that changes in NOI significantly impact a property’s ability to meet debt obligations.
In fact, a 20% or greater decline in net operating income (NOI) puts nearly 20% of loans at high default risk, as reported by GlobeSt, highlighting the downside risks in CMBS performance.
Multifamily Stability
According to Moody’s year-end report, multifamily properties continue to outperform industrial, office, and retail sectors in NOI growth.
While multifamily properties saw a post-crisis NOI increase of 61.5%, core commercial sectors lagged at 26.7%, with nearly 20% of loans facing high default risk due to serious NOI declines.
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The multifamily sector has also shown remarkable stability, with fewer severe income disruptions compared to industrial, office, and retail properties.
Approximately 28.7% of apartment properties saw NOI drops of 40% or more, compared to 46.3% for commercial properties. This resilience can be attributed to the consistent demand for housing and reduced exposure to market volatility.
Looking Ahead
While multifamily continues to outperform, the broader commercial real estate market faces challenges from NOI declines and rising operational costs.
Core commercial properties lag behind multifamily in NOI recovery, growing just 26.7% since the financial crisis. Factors like high vacancy rates in office spaces and changing retail dynamics worsen volatility in these sectors.
Investors and lenders will need to conduct deeper analyses and incorporate expense variability to better navigate the shifting landscape.ce sector-wide financial pressures. Experts warn the trend may accelerate if these businesses fail to evolve with consumer demand.
