Dive Brief:
- Despite special servicing rates across commercial real estate rising to levels not seen since 2013, those percentages fell 25 basis points to 8.18% for multifamily in June. A year ago, the rate for commercial mortgage-backed securities was 5.17%, according to a report from Trepp.
- Multifamily CMBS loan delinquencies for apartments fell 20 bps to 5.91% in June. A year ago, they were at 2.36%
- Across CRE, issues in the office sector drove monthly CMBS servicing rates 27 bps to 10.57% in June, according to Trepp, its highest level since May 2013 when the rate was 10.67%. The rate has risen nearly 225 basis points in the last year. The delinquency rate rose five basis points to 7.13% and has increased by 178 basis points over the past 12 months.
Dive Insight:
Although multifamily has its share of issues, other sectors saw bigger problems with CMBS loans in June.
The office special servicing rate climbed 62 basis points to a record high of 16.38%. The retail rate rose 41 basis points to 11.94%, its highest level since January 2022. The lodging rate increased 54 basis points to 10.11% in June.
On the delinquency side, the office rate climbed 49 bps to 11.08%, surpassing previous peaks in December 2024 and July 2012. The lodging rate rose 42 bps to 6.81% in June, while retail and industrial saw small increases.
Increased delinquencies in other sectors may not directly impact apartment investors, but they could provide creative firms with an opportunity to add inventory.
Office-to-multifamily conversion projects have gained popularity over the past several years, increasing from 12,100 units in progress in 2021 to 71,000 units by the beginning of 2025. Even with that progress, some observers believe that current economic conditions may encourage more office conversions.
“[Office conversions have] been a challenge in certain markets and it's been a challenge with certain buildings, but I'm curious to see how tariffs, immigration and labor impact conversions,” said Sharon Karaffa, president of multifamily debt and structured finance for Newmark’s Multifamily Capital Markets Division.
However, lodging properties can also provide an appealing conversion opportunity, according to Ryan Sudeck, CEO of Sage Investment Group.
Kirkland, Washington-based Sage acquires underutilized, off-market hotels and motels, transforming them into workforce studio apartments. The company now has 27 properties in six states.
“Most of our units, on average across the portfolio, we're creating for about $100,000 all in,” Sudeck said. “It's just a different approach. I'd like to see that become more of a trend. We're trying to push that forward as an alternative way to solve the problem that everyone acknowledges exists, which is that housing is too expensive.”
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