In the $20 trillion U.S. commercial real estate (CRE) market, the anticipated shakeout has been long delayed, primarily due to the challenge of determining property values. Few were willing to confront this issue head-on. While American cities, from Los Angeles to New York, have relied on high office values to bolster their property-tax revenues, the multifamily sector has significantly contributed to strengthening revenues as well. As lenders, particularly regional banks, find themselves holding loans for buildings now worth a fraction of their original price, the multifamily distress rates present another crucial aspect to consider when trying to understand the evolving landscape. This context sets the stage for our exploration of distressed debt within the multifamily sector of these major metropolitan areas, specifically New York vs Los Angeles.
In our first and second article, we laid the groundwork for understanding distress analysis using a rich research dataset comprising loans and properties supporting both agency and non-agency CMBS and CRE-CLO transactions. We calculated an aggregated distress rate of 6.83% across the full dataset and detailed the wide variation in distress rates across different property types (multifamily, office, etc.), CMSAs (consolidated metropolitan survey areas, as defined by the US Census Bureau), and loan rate type (fixed or floating). In this third article, we drill down on the multifamily property type.
