Snapshot: Q1 Commercial Mortgage Delinquencies

According to the Mortgage Bankers Association’s (MBA) Q1 Commercial Delinquency Report, commercial mortgage delinquencies increased in the first quarter of the year, strained by mortgage rates in the 7% range, and a tightening of credit standards.

“Commercial mortgage delinquency rates continued to increase during the first three months of 2024,” said Jamie Woodwell, MBA’s Head of Commercial Real Estate Research. “The increase was seen across most capital sources, pointing to the challenges caused by loans that are maturing amid higher interest rates, uncertain property values, and questions about some properties’ fundamentals.”

MBA’s quarterly analysis looks at commercial delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, and Fannie Mae and Freddie Mac (GSEs). Together, these groups hold more than 80% of commercial mortgage debt outstanding. MBA’s analysis incorporates the measures used by each individual investor group to track the performance of their loans. Because each investor group tracks delinquencies in its own way, delinquency rates are not comparable from one group to another. As an example, Fannie Mae reports loans receiving payment forbearance as delinquent, while Freddie Mac excludes those loans if the borrower is in compliance with the forbearance agreement.

A Q1 breakdown

Based on the unpaid principal balance (UPB) of loans, delinquency rates for each group at the end of Q1 of 2024 were as follows:

  • Banks and thrifts (90 or more days delinquent or in non-accrual):03%, an increase of 0.09 percentage points from the fourth quarter of 2023;
  • Life company portfolios (60 or more days delinquent):52%, an increase of 0.16 percentage points from the fourth quarter of 2023;
  • Fannie Mae (60 or more days delinquent):44%, a decrease of 0.02 percentage points from the fourth quarter of 2023;
  • Freddie Mac (60 or more days delinquent):34%, an increase of 0.06 percentage points from the fourth quarter of 2023; and
  • CMBS (30 or more days delinquent or in REO):35%, an increase of 0.05 percentage points from the fourth quarter of 2023.

“It is important to recognize that different capital sources track delinquencies in different ways–and with good reason,” added Woodwell. “The rise in delinquency rates for commercial mortgages at banks was driven by banks designating non-multifamily loans–in particular, office–as ‘nonaccrual,’ meaning the loan may still be current on payments, but the lender does not expect to be paid in full. The increases in such loans, and the associated net-charge-offs at large banks, can be seen as evidence of the institutions working to get ahead of potential future defaults.”

Construction and development loans are generally not included in the numbers presented in this report but are included in many regulatory definitions of ‘commercial real estate’ despite the fact they are often backed by single-family residential development projects rather than by office buildings, apartment buildings, shopping centers, or other income-producing properties.

Post-pandemic totals

In “Distressed Office Market Continues to Unfold Amid Stagnating Demand and Falling Property Values” a post by’s Evelyn Jozsa, it was noted that the wave of office distress many anticipated has yet to materialize, but recent U.S. office market reports show that many markets are exposed to potential distress.

“Everyone has been asking ‘where is this wave of distress?,’” said Peter Kolaczynski, Director, CommercialEdge. “The reality is that it didn’t materialize with extensions the last few years, but we are seeing an uptick, and this data shows the threat is still there in many areas.”

According to the post, nationwide, 83.7 million square feet of office was under-construction as of April, representing 1.2% of stock. The office under-construction pipeline has shrunk by more than 50% in the past 18 months, as buildings have been completed and starts have slowed to a crawl. In addition, office starts have been nearly nonexistent in 2024, with just 3.2 million square feet of new space breaking ground through the end of April. While office construction began slowing in response to the shifts the pandemic brought to office utilization, some development was still occurring.

Topping the vacancy list

The Western U.S. tech markets reported the largest increase in office vacancy rates, according to the report, with San Francisco leading at 25.9%, up 650 basis points year-over-year—the highest uptick among the top 25 U.S. office markets. Due to the tech sector’s poor performance, office employment in the city has fallen 4.9% compared to last year. The Information Technology (IT) sector alone lost 13,000 workers in the past 12 months, representing a 10.5% drop, according to the Bureau of Labor Statistics (BLS).

The BLS found that total nonfarm payroll employment increased by 175,000 in April 2024, and the unemployment rate changed little at 3.9%, with job gains reported in the healthcare, social assistance, and transportation and warehousing sectors.

As 2024 continues, the office sector may continue to encounter several challenges, including reduced demand to continued high interest rates. Notably, office sales nationwide have been driven by institutions selling high-quality assets to balance their portfolios, reduce their office exposure, and mitigate risk on their balance sheets. Nonetheless, the market is evolving to include owners who are selling because they are facing distress and upcoming loan maturities.

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Eric C. Peck

Eric C. Peck has 25-plus years’ experience covering the mortgage industry, most recently serving as Editor-in-Chief for National Mortgage Professional Magazine. He graduated from the New York Institute of Technology, where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books, and has served as Copy Editor for
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