Of the total US$393.5 billion in outstanding CMBS balances across the 50 largest US commercial real estate markets, US$45.8 billion are currently classified as distressed. This is according to data from CRED iQ and corresponds to a balance-weighted rate of 11.6 per cent. Topping the ranking of distressed markets are Minneapolis with 55.1 per cent, Denver with 35.9 per cent and Oklahoma City with 34.1 per cent. These figures are less attributable to general weakness and more to a few very large loan positions. In contrast, Salt Lake City shows the lowest proportion of distressed CMBS loans among the top 50 metropolitan areas, with zero per cent.
The type of properties largely contributing to the increase in distressed loans has changed. The share of distressed multifamily loans has more than doubled since February, from six to 13 per cent. At the same time, the distress risk in the office sector has decreased from 21.2 to 16.7 per cent.
Regional Differences and Property Segment Performance
Minneapolis, Denver and Oklahoma City lead the list of metropolitan areas with the highest distress rates. They are followed by Portland, Ore. (30.6 per cent), Austin (28.7 per cent), as well as several Midwestern metropolitan areas, including Chicago (26.4 per cent), Cleveland (23.6 per cent) and Milwaukee (23.1 per cent), complemented by San Francisco (21.5 per cent). At the lower end of the scale are Phoenix, Boston, Las Vegas and Orlando, Fla., each at about three per cent, while San Diego and Salt Lake City represent the most stable large markets with 0.4 and zero per cent respectively.
Office properties remain the largest contributor to cumulative distress at 16.7 per cent (US$22.5 billion), accounting for approximately half of the national total distressed volume. This is followed by mixed-use properties (14.4 per cent), multifamily properties (13 per cent), hospitality properties (10.6 per cent) and retail (8.8 per cent). Industrial properties show significantly better performance with only one per cent.
Recent Developments and Market Movements
Regionally, the ten Midwestern metropolitan areas show an average distress rate of 22.7 per cent, attributable to concentrated problems in Minneapolis, Chicago, St. Louis, Cleveland, Milwaukee and Cincinnati. The Northeast, West and South are all around ten per cent.
In July, 180 loans totalling US$992 million were newly classified as distressed. Approximately 96 per cent of this volume comprised multifamily properties, led by an US$84 million apartment loan in Houston. The largest single event was the transfer of two hotels in Santa Monica, California, with a total volume of US$111 million, to Special Servicing. Since February, Denver recorded the most significant change among large metropolitan areas, with an increase of 13.5 percentage points from 22.4 to 35.9 per cent, driven by two large office defaults, making it the second largest distressed market nationally. Minneapolis maintained its position as number one.
More positive news comes from Portland and Oklahoma City, both of which saw an improvement of several points, while New York, Los Angeles and Washington, D.C., remained largely stable. The overarching development is the shift in distress by property type: the office segment saw a decline of almost five percentage points since February, while distress in the multifamily segment more than doubled.
- —Weston Medical Center Apartments in Houston: US$84 million loan, newly over 60 days delinquent.
- —Ariza Forest View Apartments in Santa Rosa Beach, Fla.: US$61 million loan, newly delinquent, less than 30 days.
- —Mirasol Apartments in Las Vegas: US$53.1 million loan, newly delinquent on maturity.
- —Solaire Apartments in Bethesda, Md.: US$49.6 million loan, newly delinquent less than 30 days.
