CRE Foreclosures Jump 117% YoY Amid Economic Uncertainty

CRE foreclosures surged 117% YoY due to high interest rates, office demand shifts, and regional credit crunch concerns.
  • May marks the third consecutive month of CRE loan distress hitting record highs, with a 14-bp increase to 8.49%.
  • Special servicing rates are at 8.09%, while delinquencies are up to 5.8%, impacting a range of property types.
  • Distress includes delinquencies in CMBS properties, large loan deals, and more.
Key Takeaways

According to CRED iQ, foreclosure rates have surged 117% YoY, up 14 bps to 8.49%, as reported on Globest.

Soaring Distress

Distress in CRE loans hit a new record for the third consecutive month, reaching 8.49% in May, up 14 bps from April. CRED iQ’s distress index, including delinquency and special servicing rates, shows a special servicing rate of 8.09% and a delinquency rate of 5.8% this month.

CRED iQ meticulously assesses distress by monitoring payment statuses, special servicing actions, and distinguishing between different property types. The index considers loans with delayed payments (30+ days), those under special servicing, and non-performing loans.

Sector by Sector

Diving deeper into property types, multifamily distress stands at 7.1% (down 10 bps), while office and retail distress rates fell 60 bps to 11.1% and 11.3%, respectively. 

On the other side of the spectrum, hotel distress was up 70 bps to 9.4%. Industrial and self-storage properties also faced higher distress rates, up 0.5% and 0.1%, respectively.

Recent headliners, like the Grand Wailea Hotel’s default, show how even single-property delinquencies can impact overall CMBS distress rates. The $510.5M default contributed to higher overall hotel distress for the month.

Why It Matters

Escalating distress across sectors, particularly within CMBS loans, points to heightened risks for the entire industry. Vigilance and proactive risk management are needed to navigate the evolving commercial landscape.

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