Small Multifamily Properties Lead in Mortgage Delinquencies

While two- to four-unit buildings top the charts for late mortgage payments, the broader delinquency trend is less alarming than it appears.

Jordan B.
September 01, 2025

Together with

Good morning. It’s Labor Day—hopefully the only work-related thing you’re doing today is reading this newsletter. In today’s edition: small multifamily properties continue to show financial strain, yet recent data reveals a major shift away from last year’s historic delinquency surge.

Today’s issue is brought to you by Blue Ridge Boutique Hotel Fund.

We’re tracking whether CRE investors are leaning in or pulling back across multifamily, industrial, retail, and office—take the Q3 Fear & Greed Survey today to get early access to the results and our new Hold vs. Sell Deal Analyzer.

Market Snapshot

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Pct Chg:
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FTSE NAREIT

FNER

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10Y Treasury

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SOFR

30-DAY AVERAGE

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*Data as of 08/29/2025 market close.

Bidding Wars

Mortgage Trouble Persists in Small Multifamily—But It’s Stabilizing

While two- to four-unit buildings top the charts for late mortgage payments, the broader delinquency trend is less alarming than it appears.

By the numbers: According to the Fed. Bank of St. Louis, 2.02% of mortgages on two- to four-unit multifamily buildings held by large banks were 60+ days overdue in Q1 2025—the highest rate among residential property types. In comparison, the rates for single-family homes, condos/co-ops, and townhouses were 1.55%, 0.73%, and 0.56%.

This isn’t a new trend: Since 2013, small multifamily properties have consistently had higher late payment rates than any other residential segment. These buildings make up a key piece of the U.S. rental landscape and disproportionately house low-income tenants—heightening their exposure to income shocks and payment instability.

Shrinking market: Small and medium multifamily buildings (2–49 units) are part of what's often referred to as the “missing middle.” Despite comprising over 20% of the housing stock, their market share has been shrinking for decades—from 5.9% of housing in 1970 to just 0.8% in 2023, according to the Fed.

Zoom in: The St. Louis Fed ties elevated delinquency risk to unreliable rental income. Disruptions—whether from vacancies, nonpayment, or broader economic downturns—have a disproportionately large impact on these smaller properties compared to large-scale multifamily investments.

➥ THE TAKEAWAY

The bigger picture: Small multifamily still shows elevated risk, but the sharp drop from last year’s 15.2% peak to today’s 2.02% suggests a market finding its footing—offering a bright spot for a critical, often-overlooked housing segment.

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✍️ Editor’s Picks

Dallas Multifamily Forum: Join industry leaders at Greysteel’s Multifamily Forum on Sept. 18 for expert perspectives on DFW’s investment trends, developments, and ownership strategies. (sponsored)
CMBS trouble: CMBS delinquencies rose for the sixth straight month in August 2025, hitting 7.29%, as office and multifamily sectors posted record highs.
Labor crunch: A new AGC survey finds 92% of contractors struggling to hire, with workforce shortages delaying nearly half of projects.
Family merger: Dallas investor Ray Washburne and his wife’s Hill-Summers family interests have consolidated 81 properties totaling 14M SF into the newly formed Gillon Property Group.
Sales slump: Commercial property sales fell 10% year-over-year in July to $26.5B, marking a second straight monthly decline.
Now trending: Five forces—conversions, specialty assets, data centers, private capital, and diversification—are reshaping CRE investment.

🏘️ MULTIFAMILY

Fraud risks: Multifamily and investment property loans now top the list of fraud concerns, with 1 in 27 small multifamily applications showing red flags.
Rents cool: U.S. rents fell 0.2% in August to $1,400 as vacancies hit a record 7.1%, with Sun Belt markets softening and the Bay Area heating up.
HUD ultimatum: HUD is giving housing authorities 30 days to report undocumented tenants or risk losing federal funding.
Tower journey: Chicago’s 73-story 1000M overcame pandemic delays and financing hurdles to open fully leased on Michigan Avenue.

🏭 Industrial

Growth stall: U.S. industrial demand fell in Q2 2025 for the first time since 2010, with little growth expected until 2026.
Tariff relief: Flexport and BlackRock launched a $250M financing program to help importers cover rising tariff and trade costs.
Data demand: Nvidia sees AI infrastructure spending reaching $4T by 2030, even as growth slows and power limits loom.
Warehouse rush: With duty-free imports abruptly suspended, US importers are flooding foreign trade zone and bonded warehouses to defer tariffs and ease cash flow strain.
Arlington buy: Harbor Capital acquired the fully leased 190K SF Shoreline Business Park in Arlington’s tight Great Southwest submarket.

🏬 RETAIL

Retail divide: Chicago’s retail market shows a split: Mag Mile’s north end struggles with closures, while the south end and neighborhood corridors thrive.
Property pickup: Harbor Capital bought a 5K SF retail building in Palm Desert for $1.8M, with Shiraz Rug Co. expanding its operations into the new space.
Return policy: Wealthy shoppers drive more returns—5.3% of purchases this year—thanks to their ability to buy speculatively.

🏢 OFFICE

Downtown discount: Atlanta’s six-building Peachtree Center, spanning 2.5M SF, has hit the market and is expected to trade at a discount.
Premium sale: A fully leased King of Prussia office complex sold for nearly $68M—7% above its 2015 price—defying the broader trend of steep office discounts in Philly.
Receivership ruling: DTLA’s 42-story 1 Cal Plaza has been placed in receivership after foreclosure.

🏨 HOSPITALITY

What happens in Vegas: Las Vegas visitor traffic is declining, with fewer mid-tier travelers and a more affluent tourist base reshaping spending patterns on the Strip.
Investor interest: Cloudflare CEO Matthew Prince signaled interest in buying Park City Mountain, arguing Vail Resorts is undervalued and vulnerable to activist investors.