CRE Distress Rises to $94.2B in Q2

Total cumulative U.S. commercial property distress has risen to $94.2 billion in the second quarter of 2024, up $2.0 billion from the previous quarter, data provider MSCI said in its quarterly Capital Trends US Distress Tracker.

While the period saw $10.6 billion of new distress, $8.6 billion was resolved.

In the same period a year ago, net additions were higher, at $10 billion, MSCI noted.

Office accounted for $41.0 billion of total cumulative distress in the second quarter, while retail accounted for $21.8 billion. The apartment, hotel, and industrial sectors accounted for $14.0 billion, $13.3 billion, and $1.7 billion, respectively.

In the second quarter, the balance of potential distress reached $201 billion, with apartment assets leading this category at $56.9 billion, followed by the office sector with $50.9 billion.

Office and apartment assets accounted for most of the new distress, including one apartment property, the 3,165-unit Parkmerced in San Francisco, which was transferred to a special servicer in April and added nearly $2 billion in distress volume, accounting for over half of new multifamily distress, the data provider said.

As a result, in contrast to most other markets, the apartment sector rather than office, was the dominant source of distress in San Francisco.

In the 10 markets with the most cumulative distress, the boroughs of New York City were the only other market where distress in the apartment sector, at 60% of the total, outweighed office sector distress.

Manhattan remained the leading area for distress nationally, due to “the volume of office distress alone,” MSCI said. “Chicago had the second largest balance of office distress, totaling $4 billion.”

The value of real-estate-owned (REO) properties, or properties or assets that lenders have taken back through foreclosure, also ticked up. The cumulative total of REO in the second quarter of 2024 rose 13% from the prior quarter and jumped 46% from the same period a year ago.