CRE Analyst’s Post

Distressed CRE loans surge nationwide. More properties face foreclosure as landlords struggle to fill vacant offices. Troubled loans tied to office buildings across the U.S. are on the rise, with commercial borrowers in Chicago, Denver, Philadelphia and San Francisco among the hardest hit. The rate of delinquent or specially serviced commercial mortgage-backed securities 2.0 loans rose to 6.8 percent in August, up from 4.5 percent in June last year, the Silicon Valley Business Journal reported, citing figures from Kroll Bond Rating Agency. More properties face foreclosure as landlords struggle to fill vacant offices, while refinancing office towers becomes a tougher challenge. CMBS 2.0 conduit loans made after the Great Recession make up $600 billion in commercial real estate debt, or 13 percent of the $4.5 trillion commercial real estate debt market. The national office distress rate was 8 percent. Of the nation’s top 20 markets, the distress rate of commercial mortgage-backed security loans last month was 7.2 percent, according to KBRA, after rising in 15 cities. Chicago tops the list for troubled loans at 22.7 percent, followed by Denver at 19.1 percent, Philadelphia at 14.2 percent and San Francisco, where a third of its offices are empty, at 13.9 percent. The rate of distressed commercial debt was nearly 14 percent in Houston, more than 7 percent in New York, and approaching 6 percent in Los Angeles and nearby Riverside, according to a KBRA chart. A smaller number of loans backing large office properties has generally driven distress rates higher in major markets according to a senior managing director and head of CMBS surveillance at KBRA. But some markets show an increase in distressed loans because of other properties. In Houston, for instance, the hotel delinquency rate hit 56.1 percent. LA nearly tops nation on pending CMBS maturities, distress. The overall delinquency rate peaked at 10.2 in 2012 after the Great Recession, with office properties peaking at 10.5 percent during that period. Delinquent apartment or condominiums peaked at 15.4 percent, according to KBRA data. During the peak of the 9 pandemic, the overall delinquency rate was 9.8 percent, with lodging reaching 23 percent. The distress rate among hotel properties has since fallen to 7.2 percent. https://lnkd.in/gnSNu5fM

I posted last week about the wave of commercial real estate loans coming due but was trying to dig into the weeds a bit on what this applied to. More info to share - 1) Loans coming due (which will reset to higher rates if they have the equity to do so, they may not have the cashflow to service the higher debt rates) were extended and pushed into 2024 - 2028, but that means we have chunks of debt starting to come due. 2) Apartments are included in this (but are a much smaller share than office, etc.) 3) There will be an uptick of apartment loans but is not likely to be a widespread crisis from current predictions. It will create lots of buying opportunities for those seeking new acquisitions (like we are) It looks like this is the right time to buying... -- At the end of 2023, 49 community banks had multifamily nonperforming loans greater than 5% of total multifamily loans, according to a report from Fitch Ratings. However, Fitch noted that these banks are relatively small, averaging $1.3 billion in total assets, and the balance of multifamily loans at these institutions is only a modest fraction of the overall industry. The 10 largest multifamily lenders comprise nearly 40% of total apartment loans for the U.S. banking industry, according to Fitch. The government-backed lenders, which hold a large share of the market, don’t appear to be facing near-term issues. Only 3%, or $28 billion, of the outstanding balance of multifamily and healthcare mortgages held or guaranteed by Fannie Mae, Freddie Mac, the Federal Housing Administration and Ginnie Mae will mature in 2024, according to the Mortgage Bankers Association’s 2023 Commercial Real Estate Survey of Loan Maturity Volumes. -- “The lack of transactions and other activity last year, coupled with built-in extension options and lender and servicer flexibility, has meant that many loans that were set to mature in 2023 have been extended or otherwise modified and will now mature in 2024, 2026, 2028 or in other coming years,” said Jamie Woodwell, head of commercial real estate research at MBA, said in a press release. https://lnkd.in/exMNyWYH --- My name is Dave Weinstock and I’m the principal and founder of DW Capital. We help working professionals create passive income and build wealth by investing in commercial real estate. Click the “🔔” to follow me for information on real estate and passive investing.

I posted last week about the wave of commercial real estate loans coming due but was trying to dig into the weeds a bit on what this applied to. More info to share - 1) Loans coming due (which will reset to higher rates if they have the equity to do so, they may not have the cashflow to service the higher debt rates) were extended and pushed into 2024 - 2028, but that means we have chunks of debt starting to come due. 2) Apartments are included in this (but are a much smaller share than office, etc.) 3) There will be an uptick of apartment loans but is not likely to be a widespread crisis from current predictions. It will create lots of buying opportunities for those seeking new acquisitions (like we are) It looks like this is the right time to buying... -- At the end of 2023, 49 community banks had multifamily nonperforming loans greater than 5% of total multifamily loans, according to a report from Fitch Ratings. However, Fitch noted that these banks are relatively small, averaging $1.3 billion in total assets, and the balance of multifamily loans at these institutions is only a modest fraction of the overall industry. The 10 largest multifamily lenders comprise nearly 40% of total apartment loans for the U.S. banking industry, according to Fitch. The government-backed lenders, which hold a large share of the market, don’t appear to be facing near-term issues. Only 3%, or $28 billion, of the outstanding balance of multifamily and healthcare mortgages held or guaranteed by Fannie Mae, Freddie Mac, the Federal Housing Administration and Ginnie Mae will mature in 2024, according to the Mortgage Bankers Association’s 2023 Commercial Real Estate Survey of Loan Maturity Volumes. -- “The lack of transactions and other activity last year, coupled with built-in extension options and lender and servicer flexibility, has meant that many loans that were set to mature in 2023 have been extended or otherwise modified and will now mature in 2024, 2026, 2028 or in other coming years,” said Jamie Woodwell, head of commercial real estate research at MBA, said in a press release. https://lnkd.in/etetN_yU --- My name is Dave Weinstock and I’m the principal and founder of DW Capital. We help working professionals create passive income and build wealth by investing in commercial real estate. Click the “🔔” to follow me for information on real estate and passive investing.

The updated Fannie/Freddie lending requirements for condos have been released. Why should you care? "As of 2023, Fannie Mae and Freddie Mac support around 70 percent of the mortgage market, according to the National Association of Realtors. Most conventional loans offered by private lenders end up being backed or purchased by Fannie Mae or Freddie Mac." Here are the important updates that pertain to Reserve Studies: - The association’s budget must contribute at least 10% of the budget to reserves. - The most current reserve study (or update) must be dated within 36 months of the seller’s determination that a condominium project is eligible (see Section 5701.2(a)(3)). - The reserve study must be prepared by an independent expert skilled in performing such studies (such as a reserve study professional, a construction engineer, a certified public accountant who specializes in reserve studies or any professional with demonstrated experience and knowledge in completing reserve studies). - The reserve study must meet or exceed requirements set forth in any applicable state statutes. - The reserve study must comment favorably on the project’s age, estimated remaining life, structural integrity, and the replacement of major components. - If the mortgage lender relies on a reserve study that meets the requirements of this section, the project’s budget must contain appropriate allocations to support the costs identified in the study. - The lender must maintain and retain in the mortgage file a copy of the reserve study. The lender also must perform an analysis of the study and retain this analysis. Please read Dawn Bauman's write-up here - https://lnkd.in/gXMznXaG

New Post: Understanding Condo Requirements: Fannie Mae Vs. Freddie Mac - When it comes to financing a condominium, it’s important to understand the specific requirements set by Fannie Mae and Freddie Mac. These two government-sponsored enterprises play a crucial role in the mortgage industry, and MortgageDepot is proud to work with both of these government agencies to provide borrowers with the best financing options. Fannie Mae’s Condo Requirements Fannie Mae allows a Single Entity Investor to own no more than 20% of a development of 21 or more units. This means that if a single investor owns more than 20% of the units in a condo development, it may not meet Fannie Mae’s requirements for financing. However, MortgageDepot has a wide network of lenders who work with Fannie Mae, ensuring that borrowers have access to financing options even if their condo development doesn’t meet this specific requirement. Freddie Mac’s Condo Requirements On the other hand, Freddie Mac is slightly more lenient when it comes to condo requirements. They allow up to 25% ownership by a Single Entity Investor in the development of 21 or more units. This means that borrowers who are looking to finance a condo in a development where a single investor owns more than 20% of the units may still be eligible for financing through MortgageDepot’s network of lenders who work with Freddie Mac. MortgageDepot’s Advantage At MortgageDepot, we understand that every borrower’s situation is unique. That’s why we work with both Fannie Mae and Freddie Mac lenders to provide borrowers with a wide range of financing options. By leveraging the specific condo requirements set by these agencies, we can find the best solution for each borrower’s needs. Whether your condo development meets Fannie Mae’s 20% ownership limit or Freddie Mac’s 25% ownership limit, we have the expertise and resources to help you secure the financing you need. Understanding the condo requirements set by Fannie Mae and Freddie Mac is crucial when it comes to financing a condominium. While Fannie Mae limits the ownership by a Single Entity Investor to 20% in a development of 21 or more units, Freddie Mac allows up to 25% ownership. At MortgageDepot, we utilize both agency lending requirements to provide borrowers with a wide range of financing options. Whether your condo development meets Fannie Mae’s or Freddie Mac’s requirements, we have the expertise and network of lenders to help you navigate the process and secure the financing you need. #Understanding #Condo #Requirements #Fannie #Mae #Freddie #Mac https://lnkd.in/dFdinFNk

𝗙𝗮𝗻𝗻𝗶𝗲, 𝗙𝗿𝗲𝗱𝗱𝗶𝗲 𝗙𝗮𝗰𝗲 𝗟𝗼𝘄𝗲𝗿 𝗖𝗮𝗽 𝗼𝗻 𝗔𝗽𝗮𝗿𝘁𝗺𝗲𝗻𝘁 𝗟𝗼𝗮𝗻𝘀- Here's why that's OK for investors: The Federal Housing Finance Agency has lowered the amount of multifamily 𝗹𝗼𝗮𝗻 𝗽𝘂𝗿𝗰𝗵𝗮𝘀𝗲𝘀 𝗙𝗮𝗻𝗻𝗶𝗲 𝗠𝗮𝗲 𝗮𝗻𝗱 𝗙𝗿𝗲𝗱𝗱𝗶𝗲 𝗠𝗮𝗰 𝗰𝗮𝗻 𝗰𝗼𝗺𝗽𝗹𝗲𝘁𝗲 𝗶𝗻 𝟮𝟬𝟮𝟰 𝗯𝘆 $𝟭𝟬 𝗯𝗶𝗹𝗹𝗶𝗼𝗻, 𝗼𝗿 $𝟱 𝗯𝗶𝗹𝗹𝗶𝗼𝗻 𝗮𝗽𝗶𝗲𝗰𝗲. The 2023 cap of $75 billion for each government-sponsored housing lender has been reduced to $70 billion. Under new guidelines, half of the loans will have to be targeted at affordable housing. The two mortgage giants have securitized nearly $80 billion of multifamily loans this year. However, 𝘁𝗵𝗲 𝗙𝗛𝗙𝗔 𝗮𝗹𝘀𝗼 𝘂𝗽𝗱𝗮𝘁𝗲𝗱 𝘁𝗵𝗲 𝗰𝗿𝗶𝘁𝗲𝗿𝗶𝗮 𝗳𝗼𝗿 𝘁𝗵𝗲 𝗽𝘂𝗿𝗰𝗵𝗮𝘀𝗲 𝗰𝗮𝗽 𝘀𝗼 𝘁𝗵𝗮𝘁 𝗹𝗼𝗮𝗻𝘀 𝘁𝗵𝗮𝘁 𝗽𝗿𝗲𝘀𝗲𝗿𝘃𝗲 𝗮𝗳𝗳𝗼𝗿𝗱𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗳𝗼𝗿 𝘄𝗼𝗿𝗸𝗳𝗼𝗿𝗰𝗲 𝗵𝗼𝘂𝘀𝗶𝗻𝗴 𝗮𝗿𝗲 𝗲𝘅𝗲𝗺𝗽𝘁 𝗮𝗻𝗱 𝘄𝗼𝗻’𝘁 𝗰𝗼𝘂𝗻𝘁 𝗮𝗴𝗮𝗶𝗻𝘀𝘁 𝘁𝗵𝗲 $𝟳𝟬 𝗯𝗶𝗹𝗹𝗶𝗼𝗻 𝗰𝗲𝗶𝗹𝗶𝗻𝗴. Even with the lower limit, neither Fannie Mae nor Freddie Mac appear to be at risk of capping out lending based on this year’s volume. Fannie Mae’s new multifamily loan purchases through the first three quarters totaled $41.7 billion. Freddie Mac’s new multifamily business for the period was even lower at $32 billion, the two firms reported in October. "A cap of $70 billion for each of [Fannie Mae and Freddie Mac] is reasonable, given the challenging market conditions and high interest rate environment expected in 2024,” Bob Broeksmit, president and CEO of the Mortgage Bankers Association, said in a statement. As in years past, 𝘁𝗵𝗲 𝗙𝗛𝗙𝗔 𝗻𝗼𝘁𝗲𝗱 𝗶𝘁 𝘄𝗶𝗹𝗹 𝗺𝗼𝗻𝗶𝘁𝗼𝗿 𝘁𝗵𝗲 𝗺𝘂𝗹𝘁𝗶𝗳𝗮𝗺𝗶𝗹𝘆 𝗺𝗼𝗿𝘁𝗴𝗮𝗴𝗲 𝗺𝗮𝗿𝗸𝗲𝘁 𝗮𝗻𝗱 𝘂𝗽𝗱𝗮𝘁𝗲 𝘁𝗵𝗲 𝗰𝗮𝗽 𝗮𝗻𝗱 𝗺𝗶𝘀𝘀𝗶𝗼𝗻-𝗱𝗿𝗶𝘃𝗲𝗻 𝗿𝗲𝗾𝘂𝗶𝗿𝗲𝗺𝗲𝗻𝘁𝘀 𝗶𝗳 𝗮𝗱𝗷𝘂𝘀𝘁𝗺𝗲𝗻𝘁𝘀 𝗮𝗿𝗲 𝘄𝗮𝗿𝗿𝗮𝗻𝘁𝗲𝗱, Kevin Palmer, head of multifamily for Freddie Mac, said in a statement. 𝗧𝗵𝗲 𝗙𝗛𝗙𝗔 “𝘄𝗼𝗻’𝘁 𝗱𝗲𝗰𝗿𝗲𝗮𝘀𝗲 𝘁𝗵𝗲 𝗰𝗮𝗽 𝗶𝗳 𝘁𝗵𝗲 𝗺𝗮𝗿𝗸𝗲𝘁 𝗶𝘀 𝘀𝗺𝗮𝗹𝗹𝗲𝗿 𝘁𝗵𝗮𝗻 𝗽𝗿𝗼𝗷𝗲𝗰𝘁𝗲𝗱,” 𝗣𝗮𝗹𝗺𝗲𝗿 𝘀𝗮𝗶𝗱. “𝗪𝗲 𝗸𝗻𝗼𝘄 𝘁𝗵𝗲 𝗺𝘂𝗹𝘁𝗶𝗳𝗮𝗺𝗶𝗹𝘆 𝗺𝗮𝗿𝗸𝗲𝘁 𝗳𝗮𝗰𝗲𝘀 𝘀𝗶𝗴𝗻𝗶𝗳𝗶𝗰𝗮𝗻𝘁 𝗵𝗲𝗮𝗱𝘄𝗶𝗻𝗱𝘀, 𝘄𝗵𝗶𝗰𝗵 𝗺𝗮𝗸𝗲𝘀 𝗙𝗿𝗲𝗱𝗱𝗶𝗲 𝗠𝗮𝗰’𝘀 𝗰𝗼𝘂𝗻𝘁𝗲𝗿𝗰𝘆𝗰𝗹𝗶𝗰𝗮𝗹 𝗿𝗼𝗹𝗲 𝗰𝗿𝗶𝘁𝗶𝗰𝗮𝗹𝗹𝘆 𝗶𝗺𝗽𝗼𝗿𝘁𝗮𝗻𝘁 𝘁𝗼 𝗹𝗲𝗻𝗱𝗲𝗿𝘀 𝗮𝗻𝗱 𝗯𝗼𝗿𝗿𝗼𝘄𝗲𝗿𝘀. We continue to maintain a laser focus on providing liquidity, stability and affordability to the market.” #cre #multifamily #apartments #snohomishcounty #kingcounty #spokane

Thank you to all who attended our Reserve Study webinar. Link to access the recording https://lnkd.in/eSRM3_UV We received several emails asking for an outline of our discussion points. If you missed it we included some of the most important information provided in the webinar below. If you need a Reserve Study please request a proposal https://lnkd.in/eiWwaRxp Webinar Recap Regarding Condo/Co-op Lending and Reserve Studies Agency Lending -Fannie Mae and Freddie Mac lending guideline changes go into effect on September 18th, 2023. -The focus of residential condo and co-op lending is firmly on aging infrastructure, critical repairs, structural property condition, mechanical component condition, special assessments, financial health and reserves. -Fannie Mae has changed their reserve study guidelines and will now again accept reserve studies to prescribe budgeted reserves. -Condo CIRA capital loans and lines of credit are acceptable means of funding repair and replacement costs. -Co-op underlying mortgages, capital loans and lines of credit are an acceptable means of funding repair and replacement costs. -All critical repairs must be completed before mortgage lending is available for residential condo/co-op borrowers. -Fannie Mae “unavailable” lending designation informs owners and purchasers of important financial, mechanical and structural deficiencies. -Building Wide Lending Analysis recommended for all condo/co-op properties. Jumbo and Portfolio Lending -Reciprocal “unavailable” designation common. -Aging Infrastructure, capital reserves and financial health important for lending approval. -Reserve Studies often requested for review and lending approval. Strategic Inspections Reserve Studies -Reserve Studies and Engineering reports are required to be reviewed by all lenders prior to funding residential -Fannie Mae or Freddie Mac mortgages. -Reserve Studies and Engineering Reports must be less than 36 months old. -New Condo developments can utilize reserve study funding prescriptions for both Fannie Mae and Freddie Mac approval. -Strategic Inspections new “Lender Property Analysis” available for all new reserve study orders beginning August 1, 2023 -Reserve Study engineer inspections and report delivery times have been extended by 60-90 days on average. -Strategic Inspections can provide rush Reserve Study reports at no additional cost. -Condo and Co-op boards should obtain reserve studies as soon as possible as lending guidelines will impact property eligibility and unit value for non-compliant buildings. Capital Loans for Condo/Co-op Buildings -Capital loans are recommended for all condo/co-op HOA’s in lieu of special assessments. Request a proposal https://lnkd.in/eiWwaRxp https://lnkd.in/eSRM3_UV

Not good. Bloomberg) -- As delinquencies on multifamily mortgages pile up, lenders who had bundled those borrowings into securitizations known as commercial real estate collateralized loan obligations are racing to stave off trouble. To buy the defaulted loans, some lenders have been borrowing the money from banks and other third parties using what are known as warehouse lines, a type of revolving credit facility. The distress rate for loans that were bundled into these bonds rose past 10% at the end of March, according to CRED iQ, compared with 1.7% in July last year. To keep the share of bad loans from spiking too high — a development that would cut the issuers off from the fees they collect on the CRE CLOs — they’ve been furiously buying them back. It’s the latest sign of strain among the $79 billion of loans packaged into CRE CLOs. The lenders acquired $520 million of delinquent credit in the first quarter, a 210% increase on the same period last year, according to estimates by JPMorgan Chase & Co.

Delinquent commercial real estate loans at U.S. banks are on the rise. The volume of past-due loans in which commercial proprietors missed more than one payment jumped 36% in the third quarter. Borrowers have struggled lately to refinance their loans amid declining property values and rising interest rates. Bank lending remains in historically good shape, despite the delinquencies. But past-due CRE loans will continue to increase, as long as property values remain under pressure, particularly those in the beleaguered office market. Banks are stepping up efforts to restructure CRE loans to avoid losses. For example, the volume of loans in which Bank of America has either forgiven interest or extended due dates rose by nearly $750 million in the third quarter. Many banks are also setting aside more money to cover expected losses from their CRE portfolios. The office market is still under pressure, as the vacancy rate remains high. The national office vacancy rate reached 19.2% in the third quarter, up from 18.9% in the second quarter. The office market also saw another quarter of relatively stagnant rent growth. Asking rents rose 0.08%, while effective rents climbed just 0.04%. Both have been flat for the past year, with demand for office space still unstable. New office construction is on track to finish below the historical average. A key contributor to the problem: Many folks are still working from home. Around 29% of households have one person who works from home at least one day of the week, according to recent Census data. But fewer folks are doing so full-time, suggesting that many companies are still shifting toward a hybrid work arrangement. The good news: Most cities are now seeing workers return to the office. Apart from Boston, Houston, Miami, San Francisco and Washington, D.C., the share of folks working from home has fallen over the last year in all major metro areas. Financing for offices will dry up as demand for office-backed bonds drops. Delinquency rates for commercial mortgage-backed securities focused on office loans rose to 4.6% in Oct., the highest since 2018, causing many investors to steer clear