Most commercial property types see lower default rates
Delinquency rates for commercial mortgages eased slightly during the second quarter. While the overall trend is positive, the industry is still navigating a complex landscape marked by rising interest rates, fluctuating property values, and economic uncertainty.
The overall delinquency rate for commercial mortgages 60-90 days delinquent dropped one basis point to 0.2% in the second quarter, according to the Mortgage Bankers Association (MBA).
MBA’s latest commercial real estate finance loan performance survey revealed that 97% of outstanding loan balances were current or less than 30 days late at the end of the quarter, up from 96.8% in the first quarter. The percentage of loans 90+ days delinquent or in REO remained unchanged at 2.5%.
However, underlying challenges persisted as the commercial real estate market adjusts to changing economic conditions.
“The delinquency rate for most property types declined last quarter, with the exception of loans backed by office properties, which experienced an increase,” said Jamie Woodwell, MBA’s head of commercial real estate research. “Even so, the pace of increase in the delinquency rate for office property loans appears to have slowed in recent quarters.”
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Office properties saw an increase in delinquencies, with 7.1% of loan balances 30 days or more delinquent, up from 6.8% the previous quarter. Other property types experienced decreases:
- Lodging loans: 5.8% delinquent, down from 6.3%
- Retail balances: 4.5% delinquent, down from 4.7%
- Multifamily balances: 1.1% delinquent, down from 1.2%
- Industrial property loans: 0.8% delinquent, down from 1.2%
“Commercial properties are working through changes in interest rates, property values, and the fundamentals of some properties,” Woodwell explained. “Each property and loan faces a unique mix of conditions depending on that property’s type and subtype, market and submarket, owner, vintage, deal terms and more. As more loans mature throughout the year, more properties will be adjusting to these new conditions.”
Among capital sources, CMBS loans had the highest delinquency rates at 4.8%, though this was a decrease from 5.2% in the previous quarter. Other capital sources showed more moderate non-current rates:
- FHA multifamily and health care loans: 0.9% delinquent, up from 0.8%
- Life company loans: 1.1% delinquent, down from 1.2%
- GSE loans: 0.4% delinquent, unchanged
MBA’s survey collected data on $2.6 trillion of loans as of June 30, representing 55% of the total $4.7 trillion in commercial and multifamily mortgage debt outstanding.
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