Community banks' multifamily have shown a “dramatic rise in delinquent loans and realized losses,” including a 12-year delinquency high of $6.1 billion, according to a CRED iQ analysis.
The record delinquent loans translate to a 0.97% delinquency rate based on a multifamily total loan amount of $629.7 billion. The delinquency definition includes any loan with a payment of at least 30 days late. The last time community banks saw the category top $6 billion was in March 2012 when the rate was 4.9%. A more disturbing comparison would have been 2010 Q3, when the figure hit $12.34 billion.
The increase in multifamily distress is more noticeable in the context of more than $2 trillion in CRE loans. As of January 2025, the CMBS multifamily distress rate reached 12.9%, 40 basis points up from December 2024. A year ago, the rate was 2.6%. For CMBS, distress includes loans at least 30 days late and special servicing.
The pivot point seems to have happened in April 2024, according to CRED iQ. Multifamily distress jumped from 3.7% to 7.2% due to a $1.75 billion loan on San Francisco’s Parkmerced complex. The trend accelerated by January 2025 and “the trajectory suggests multifamily is grappling with pressures that aren’t letting up.”
It is important to remember that there are two ways of measuring overall performance. One is how this was calculated, with total loan amounts. The other would be a count of individual ones, which could help identify whether problems are flat across all the loans or if they are concentrated in larger figures.
The growing problems are likely due to the Federal Reserve’s rate hikes in 2022 and 2023. Previously, many multifamily loans originated at much lower rates, at around 2% to 3%. The refinancing rates now range from 5% to 6%. This has hurt cash flows, which was particularly difficult for properties with thin margins or high leverage.
CRED iQ’s data suggests that 2025 could be a challenging year. About $500 billion in multifamily loans are maturing this year, leaving the sector in a “refinancing cliff.” A 25-basis-point interest rate cut by mid-2025 might ease some of the pressure, but signs suggest that might be optimistic.
Complicating the matter is the existing oversupply of units that won’t disappear overnight and large loans like Parkmerced’s “could linger as distressed if unresolved.” It’s possible, if multifamily loans by community banks continue as they have “absent a major turnaround,” the delinquency rate could hit 14% to 15% by the end of 2025.