MBA highlights mounting pressures in commercial real estate lending
The Mortgage Bankers Association (MBA) reported an uptick in delinquency rates for mortgages backed by commercial properties during the last quarter of 2023.
MBA’s Commercial Real Estate Finance (CREF) Loan Performance Survey’s findings showed a decrease in the proportion of current loan balances, dropping from 97.3% at the end of the third quarter to 96.8% by December 2023.
Delinquencies of 90+ days, or in Real Estate Owned (REO) status, rose slightly to 2.3%, from 2.2% in the previous quarter. Loans 60-90 days delinquent increased to 0.3%, and those 30-60 days delinquent went up to 0.6%.
The data reflects the ongoing pressures within the commercial real estate markets, according to Jamie Woodwell, head of commercial real estate research at MBA.
“Ongoing challenges in commercial real estate markets pushed the delinquency rate on CRE-backed loans higher in the final three months of 2023,” Woodwell said in the report. “Delinquency rates jumped to 6.5% of balances for loans backed by office properties and to 6.1% for lodging-backed loans. Delinquencies for loans backed by retail properties remained elevated from the onset of the pandemic but were unchanged during the quarter. Delinquency rates for multifamily and industrial property loans both increased marginally but remain much lower.”
Office property loans were notably affected, with 6.5% of their balances delinquent, an increase from 5.1%. Lodging loans saw a rise to 6.1% from 4.9%, while retail property loans maintained a steady delinquency rate. Multifamily property loan delinquencies rose slightly to 1.2%, and industrial property loans saw an increase from 0.6% to 0.9%.
Among different capital sources, Commercial Mortgage-Backed Securities (CMBS) loans witnessed the highest delinquency levels, rising to 5.1% from 4.4% in the previous quarter. Other sources like FHA multifamily and health care loan balances, life company loan balances, and government-sponsored enterprise (GSE) loan balances showed more moderate increases in non-current rates.
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Woodwell also pointed out the varying factors impacting different properties and loans, including long-term interest rates, which have somewhat declined from last year’s peaks.
“[This] should provide some relief to some loans, but many properties and loans still face higher rates, uncertainty about property values and – for some properties – changes in fundamentals,” he continued. “Each loan and property faces a different set of circumstances, which will come into play as the market works through loans that mature this year.”
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