Commercial real estate faces rising debt and delinquency risks

The commercial real estate sector is facing renewed pressure as office and multifamily debt challenges intensify. Following a 25 basis point interest rate hike by the Federal Reserve, the strategy of waiting for lower rates has become increasingly difficult for many owners.

In the office sector, CMBS delinquency reached 12% last month, surpassing levels seen after the 2008 financial crisis. Approximately $64 billion in office CMBS debt is set to mature this year and next, with nearly $40 billion currently delinquent, in default, or on a watchlist. A notable example includes Chicago’s Aon Center, which saw its loan extension request denied after its value dropped significantly from its 2015 sale price.

The multifamily sector also faces substantial debt obligations. According to the Mortgage Bankers Association, multifamily owners face more than $1.8 trillion in maturing debt over the next decade, with nearly $300 billion due this year alone. Many of these loans, originally issued at roughly 3% in 2020 and 2021, must now be refinanced at approximately double that rate. Consequently, the CMBS delinquency rate for multifamily properties rose from 1% in October 2023 to 7.1% this year. Even major players like Blackstone have faced defaults, including a $90 million loan for an apartment building in North Dallas.