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Wave of distressed sales on horizon as loan delinquency jumps

NAI Global President & CEO Jay Olshonsky, FRICS, SIOR, CCIM is expecting a wave of distressed commercial real estate assets to come to market in the next 9-18 months.

The challenge property owners’ currently face is the ability to collect rent from existing tenants and attract new tenants to the vacant space in their buildings, especially in the face of collapsing businesses and the rise in bankruptcy filings.

JAY OLSHONSKY

Over time and without normal rental income, property owners can lose the ability to make mortgage payments and cover operational expenses. That becomes the inflection point in which lenders take control of their properties, hire special servicing companies and sell assets under duress.

The situation is most dire for hotels and resorts, retail properties and retail-weighted mixed-use properties, though office properties are likely to be negatively affected in this cycle and part of the wave.

Many companies have not re-occupied their offices and for most of those that have, occupancy is not at pre-Covid-19 levels.

According to Trepp data procured by NAI Global, delinquency rates on CMBS-based loans spiked in May of this year to 7.16 percent of total outstanding loans, from 2.33 percent in April.

In June, the CMBS delinquency rate on loans backed by these securities jumped to 10.32 percent, which is a 748 basis point rise from one year ago when the delinquency rate was 2.84 percent.

The June delinquency rate is very close to the recent high of 10.34 percent in July 2012, the peak of the post-GFC bust, and commercial mortgage default rate could be headed higher in July and August.

CMBS loans are considered a benchmark of the commercial mortgage lending market as those types of loans account for approximately 20 percent of total loans on commercial properties.

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