According to the Mortgage Bankers Association's (MBA) latest commercial real estate finance (CREF) Loan Performance Survey [1], delinquency rates for mortgages backed by commercial properties increased during Q4 of 2023.
"Ongoing challenges in commercial real estate markets pushed the delinquency rate on CRE-backed loans higher in the final three months of 2023," said Jamie Woodwell, MBA's Head of Commercial Real Estate Research [2]. "Delinquency rates jumped to 6.5% of balances for loans backed by office properties, and to 6.1% for lodging-backed loans. Delinquencies for loans backed by retail properties remain elevated from the onset of the pandemic, but were unchanged during the quarter. Delinquency rates for multifamily and industrial property loans both increased marginally but remain much lower.”
The balance of commercial mortgages that are not current increased in December 2023 (compared to September 2023):
- 96.8% of outstanding loan balances were current or less than 30 days late at the end of Q3, down from 97.3% at the end of Q3 of 2023.
- 2.3% were 90-plus days delinquent or in REO, up from 2.2% the previous quarter.
- 0.3% were 60-90 days delinquent, up from 0.2% the previous quarter.
- 0.6% were 30-60 days delinquent, up from 0.3%.
- Loans backed by office properties drove the increase.
- 6.5% of the balance of office property loan balances were 30 days or more days delinquent, up from 5.1% at the end of last quarter.
- 6.1% of the balance of lodging loans were delinquent, up from 4.9%.
- 5.0% of retail balances were delinquent, flat from the previous quarter.
- 1.2% of multifamily balances were delinquent, up from 0.9%.
- 0.9% of the balance of industrial property loans were delinquent, up from 0.6%.
- Among capital sources, CMBS loan delinquency rates saw the highest levels.
- 5.1% of CMBS loan balances were 30 days or more delinquent, up from 4.4% last quarter.
- Non-current rates for other capital sources remained more moderate.
- 0.9% of FHA multifamily and healthcare loan balances were 30 days or more delinquent, up from 0.8%.
- 0.9% of life company loan balances were delinquent, up from 0.7%.
- 0.5% of GSE loan balances were delinquent, up from 0.4%.
“Long-term interest rates have come down from their highs of last year, which should provide some relief to some loans, but many properties and loans still face higher rates, uncertainty about property values and–for some properties–changes in fundamentals,” added Woodwell. “Each loan and property faces a different set of circumstances, which will come into play as the market works through loans that mature this year.”
MBA's CREF Loan Performance survey collects information on commercial and multifamily mortgage portfolios as of December 28, 2023, where participants reported on $2.7 trillion of loans in December 2023, representing 58% of the total $4.6 trillion in commercial and multifamily mortgage debt outstanding (MDO).
Epiq AACER’s recent monthly bankruptcy filings report [3] covering the calendar year 2023 found that commercial Chapter 11 bankruptcy filings increased 72% over the course of the year, rising from 3,819 in 2022 to 6,569 in 2023. All commercial filings increased 19% to 25,627 in 2023 from the 21,479 filings recorded during 2022. Subchapter V elections within Chapter 11 also experienced a substantial increase in calendar year 2023, as the 1,939 filings represented a 45% increase from the 1,334 recorded in 2022.
In total, all bankruptcy filings during the calendar year 2023 amounted to 445,186 filings, an 18% increase from the 378,390 recorded in 2022. While representing a substantial year-over-year increase, total bankruptcy filings remain lower than the pre-pandemic total of 757,816 recorded in CY2019.
“As anticipated, we saw new filings in 2023 increase momentum over 2022 with a significant number of commercial filers leading the expected increase and normalization back to pre-pandemic bankruptcy volumes,” said Michael Hunter, VP of Epiq AACER [4]. “We expect the increase in number of consumer and commercial filers seeking bankruptcy protection to continue in 2024 given the runoff of pandemic stimulus, increased cost of funds, higher interest rates, rising delinquency rates, and near historic levels of household debt.”
Overall consumer filing totals for calendar year 2023 were 419,559, representing an 18% increase from the 356,911 consumer filings the previous year. The 175,964 consumer Chapter 13 bankruptcy filings during calendar year 2023 also registered an 18% increase over 2022’s total of 149,069. Consumer Chapter 7 filings increased 17% in CY2023 to 242,936 from 207,188 filings the previous year.