“Distress rates are up” has become the commercial real estate equivalent of “dog bites man.” The overall rate for CMBS financed properties has reached a record fifth straight high of 11.5%, adding 90 basis points in January 2025 from December’s 10.6%, according to CRED iQ.
The special servicing rate was up 50 basis points to 10.3%. In January 2024, it was 6.7%. And the delinquency rate was nearly 9.0%.
The highest level of distress, as anyone in CRE would likely guess, is office. The segment distress rates rose to 17.7%, showing “its decisive leadership as the most distressed property type.” There is some good news, as it only added 50 basis points since December.
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The rate at which change increases or decreases is a critical sign. Before any trend can change directions, the pace at which change alters has to fall to zero. The lower what in calculus would be the second derivative, the closer the system is to the ability to reverse.
In addition, office is perhaps the most clearly bifurcated CRE asset type. Class A and trophy offices typically perform well while poor performance is centered more on Class B and C. Overall distress, delinquency, or special servicing rates are likely to vary greatly across the two parts.
The second highest level of distress in January was self-storage at 14.2%. Most of 2024 was below 1%, so while a surprise jump, it is misleading for a reason. One portfolio of 16 self-storage properties in the Chelsea part of New York City was backed by a $2.08 billion single-borrower loan. Maturity came in January, but the final payment wasn’t made. According to data from the special servicer, the borrower is exercising the first of three one-year extensions.
Given the unusual circumstances of the self-storage, multifamily was probably the true second place with a 40-basis-point increase to 12.9%. In January 2024, the distress rate was 2.6%.
Real third place was retail, which dropped from 10.9% in December to 10.8% in January. Right behind was hotel, with a 10.4% distress rate after a 50-basis-point month-over-month decrease. Industrial added 80 basis points, the largest increase, but still was at only 1.6%. Retail fell 60 basis points to 10.8%.
In terms of payment, the percentage of current loans went from 13.5% in December to 14.7% in January. Combining current with late but within the grace period, the total increased 310 basis points from 19.6% to 22.7%.
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