Bankers See Uptick in Commercial Delinquencies

Mortgage Bankers’ 3Q report finds office mortgage-delinquency rates passing retail and hotel – but multifamily and industrial delinquencies remain below 1%.

WASHINGTON, D.C. – The commercial real estate industry is facing some unique challenges. In addition to rising loan rates, there’s a lot of uncertainty over future demand, such as whether the office market will bounce back after the pandemic work-at-home phase, and whether a spike in travel post-pandemic will fall back to historic levels – or less – as inflation takes a toll on Americans’ budgets.

Overall, the Mortgage Bankers Association’s (MBA) Loan Performance Survey report for the third quarter of 2023 finds an increase in delinquencies.

“The delinquency rate for loans backed by commercial properties has now increased for four consecutive quarters,” says Jamie Woodwell, MBA’s head of Commercial Real Estate Research. “The delinquency rate for loans backed by office properties now exceeds those of loans backed by retail and hotel properties, while the delinquency rates for multifamily and industrial property loans remain below one percent.”

Woodwell says commercial property markets are working through challenges.

It’s “stemming from uncertainty about some properties’ fundamentals, a lack of transparency into where current property values are, and higher and volatile interest rates,” he says. “The result has been a slow and steady uptick in delinquency rates, concentrated among loans facing more of those challenges.”

MBA’s 3Q Loan Performance Survey takeaways

• 97.3% of outstanding loan balances were current or less than 30 days late, down from 97.7% at the end of 2Q 2023.
• 2.2% were 90+ days delinquent or in REO, up from 1.7% the previous quarter.
• 0.2% were 60-90 days delinquent, unchanged quarter-to-quarter.
• 0.3% were 30-60 days delinquent, down from 0.4%.
• Loans backed by office properties drove the increase. 1% of the balance of office property loans were delinquent, up from 4.0% at the end of last quarter.
• 5.0% of the balance of retail loan balances were delinquent, up from 4.9%.
• 4.9% of the balance of lodging loans were 30 days or more delinquent, down from 5.3%.
• 0.9% of multifamily balances were delinquent, up from 0.7%.
• 0.6% of the balance of industrial property loans were delinquent, down from 0.8%.
• Among capital sources, CMBS loan delinquency rates saw the highest levels. 4.4% of CMBS loan balances were 30 days or more delinquent, up from 4.1% last quarter.
• Non-current rates for other capital sources remained more moderate.
• 0.8% of FHA multifamily and health care loan balances were 30 days or more delinquent, unchanged from last quarter.
• 0.7% of life company loan balances were delinquent, up from 0.4%.
• 0.4% of GSE loan balances were delinquent, up from 0.3%.

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