There’s good and a bad news scenario for loans, according to a CRED iQ report. Across Freddie Mac, Fannie Mae, Ginnie Mae, CRE CLO, and CMBS, distress for both conduit and single-borrower large loan deal types dropped for the first time in five months. The drop was 70 basis points, landing at 10.8% and breaking a streak of four consecutive record highs. However, office distress hit a new high of 19.3%.
The distress rate combines delinquency and specially serviced rates. That includes any loan with a payment status of at least 30 days delinquent or with a special servicer. They include non-performing and performing loans that did not pay off at maturity.
Other distress metrics also fell month-to-month. Delinquency fell from 8.9% in January to 8% in February. The special servicing rate dropped 20 basis points to 10.1%. A year ago, delinquency was 5.4%, with special servicing at 7%.
The overall decrease doesn’t mean all property types saw a drop. Multifamily distress was up 40 basis points in January and an additional 10 in February to reach 13.0%. Retail was down 10 basis points to 10.7% while hotel dropped 20 basis points to 10.2%. Retail saw a 10-basis-point reduction to 10.7%. Industrial dropped 110 basis points to 0.5% from 1.6%.
Self-storage took a large downward move from 14.2% in January to 2% in February. That was due to a 16-property, $2 billion portfolio that reached maturity. The first of three one-year extension options was exercised, explaining the February rate. The same magnitude of change happened in 2024 when descending from 14.4% in January to 0.1% in February.
Office almost matched the December increase, which was “by far” the largest in 2024, according to CRED iQ. The current offices environment, however, is more complex in a number of ways. One is the limited range of information. The types of loans CRED iQ tracked are only a part of the entire financing spectrum, which means the statistics are not projectable across all sector loans. They may not even properly describe the entire group of similar loans.
A second and larger limitation is the imbalance in office stock. Data from CBRE about 4,350 comparable new leases over 12 metro markets shows that Class A and A+ properties collectively saw base and effective rent increases from 2023 to 2024. Class B and C saw rents fall. Office distress levels in the CRED iQ report may be influenced by systemic differences in the qualities of the properties in question.
The third limitation is the difference between analyzing total loan values and counts of them. Large distressed loans can make a problem sound more distributed rather than concentrated and affect strategic business decisions.