Commercial, multifamily delinquencies rise amid lending logjam

Interest rate volatility and uncertainty around property values take their toll

Commercial, multifamily delinquencies rise amid lending logjam

There was an uptick in delinquency rates for commercial and multifamily mortgages during the second quarter amid a logjam in sales that’s clogging the mortgage market, according to the Mortgage Bankers Association (MBA).

Commercial and multifamily mortgage delinquency rates climbed for the third straight quarter in Q2, MBA’s latest commercial real estate finance (CREF) Loan Performance Survey revealed.

The balance of commercial and multifamily mortgages that were current or less than 30 days late at the end of Q2 was 97.7%, down only one basis point from the previous quarter. The share of loans that were 90+ days delinquent or in REO also posted a one-basis point drop to 1.7%, and those that were 60-90 days delinquent stayed unchanged at 0.2%.

While the overall delinquency rate remained stable, there were significant differences in property types. Loans backed by office properties drove the increase, up to 4% from just 2.7% quarter over quarter. Retail mortgages followed with a three-basis-point rise to 4.9%. Meanwhile, the balance of delinquent lodging and industrial loans fell three basis points to 5.3% and one basis point to 0.8%, respectively. The multifamily loan delinquency rate in Q2 was unmoved at 0.7%.

“Delinquency rates remain highest for lodging and retail loans, which have improved markedly but remain elevated as a result of pandemic-related impacts,” Jamie Woodwell, MBA’s head of commercial real estate research, explained in the report. “Not unexpectedly, delinquencies among mortgages backed by office loans drove the overall increase this quarter – with the office delinquency rate rising 130 basis points from 2.7% to 4%. By comparison, retail delinquency rates rose 30 basis points, multifamily loan delinquency rates were unchanged, and industrial and lodging delinquency rates declined.”

Among capital sources, CMBS loan delinquencies registered the largest increase of eight basis points to 4.1%. On the other hand, non-current rates for other capital sources remained more moderate, with delinquencies for FHA multifamily and healthcare loans at 0.8%, life company loans at 0.4%, and GSE loan balances at 0.3%.

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“Recent volatility in interest rates, uncertainty around property values, and questions about some property fundamentals have led to a logjam in parts of the sales and mortgage transaction markets,” Woodwell said. “As loans mature, owners, lenders, and others will be working to identify the best path forward for each asset – which may help begin to break that logjam.”

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