HomeMy WebLinkAbout1-29-24 Fitch - Multifamily CMBS delinquencies to double in 2024 - Multifamily DiveDive Brief:
Multifamily delinquencies for commercial mortgage-backed
securities loans are slated to double to $1.3 billion in 2024,
exceeding their pandemic peak, according to a report from Fitch
Ratings.
Apartments will be challenged by heightened levels of new
supply, slowing revenue growth and higher expenses, which will
limit property net cash flow, according to Fitch.
Throughout commercial real estate, U.S. CMBS loan
delinquency rates sat at 2.25% as of November 2023. Fitch
projects that number to jump to 4.50% in 2024 and 4.90% in
2025, as it evaluated factors like more maturity defaults from
higher interest rates, tighter access to capital, fewer special
servicing resolutions, less new issuance and increased loan
modifications.
Dive Insight:
In all, more than $31.2 billion — totaling 1,473 conduit and agency
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Fitch-rated U.S. CMBS loans — is scheduled to mature in 2024.
Another $37.9 billion, or 2,437 loans, are on pace to mature in
2025. By comparison, $26.5 billion matured between October
2022 and December 2023.
The maturing loans are concentrated in three sectors: retail, office
and multifamily. Overall, refinancing activity was better than
expected in those sectors in 2023. But Fitch noted that those rates
declined in the last six months of the year, indicating what it called
“mounting challenges.”
While Fitch indicated the refinancing climate should improve in
2025 as interest rates decrease, there is still a staggering amount of
apartment loans maturing in the next five years. Trepp said that $1
trillion in total multifamily debt is due to mature through 2028.
Sandy Schmid, director of acquisitions and development for
Beverly Hills, California-based StarPoint Properties, thinks
concerns about multifamily loan maturities are a little overhyped.
“In the global financial crisis there was a lot of distress, but it
wasn’t as bad as some predicted,” Schmid said. “I would say the
same thing is going to happen here because we still do have a very
solid economy. Unemployment is still historically low. We still
have job creation.”
That resilient economy will be one thing that helps soften the loan
maturity risk in 2024, according to Schmid. “There will also be
some softening in the interest rate environment, which will assist
that refinance issue,” he said.
But even if the Federal Reserve drops interest rates in the near
future, apartment owners will need to bring money to the table to
refinance, according to Darren Fisk, CEO of Denver-based Forum
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Investment Group.
“I’m of the mindset that we’ve had such a large run up that the Fed
is not going to also say, ‘Hey, let’s drop our rates 100 basis points,’”
Fisk said “If they do, it’s going to be, ‘Hey, let’s start with 25 basis
points.’ So I think there is going to be gap financing needed.”
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