CRE Loan Delinquencies Hit Highest Percentage In 10 Years, And The Rate Could Go Higher

Commercial real estate loan delinquencies reached a 10-year high at the end of 2024, and they could continue to grow in the year ahead, according to new Federal Reserve data. 

U.S. banks reported delinquencies hit 1.57% at the end of last year, a rate not seen since the fourth quarter of 2014, CoStar reported.

Federal Reserve data showed banks are more reluctant to absorb losses, as charge-off rates rose slightly to 0.26%. That equates to around $7.8B in debt written off as a loss by banks in Q4.  

After peaking at the end of 2020 at 1.15%, commercial property loan delinquency fell for more than a year, to 0.63% by Q3 2022.

But it has risen steadily since. 

More than $3T of CRE loans were outstanding at the end Q4, according to the Federal Reserve. The 1.57% delinquency percentage means more than $47.1B of loans would have been delinquent at the end of the year. 

That is a nearly 88% increase from the more than $25B Fed data shows would have been unpaid at the end of 2014.

The delinquency percentage could increase further. Fed Vice Chair for Supervision Michael Barr warned in February that known risks in CRE, particularly within the office market, should remain top of mind for banks and supervisors, as borrowers could face difficulty refinancing maturing loans.

Office sector loan delinquencies have been a “top concern” for the Fed for a while, according to its twice-yearly supervision and regulation report issued in November. The multifamily sector also saw a material and steady uptick in delinquency rates, according to the report. 

While loan deterioration has mostly happened at large banks, smaller banks also saw delinquency rates increase last year. 

Rising operating costs with limited interest rate relief for multifamily properties helped drive the overall delinquency rate for the CMBS market to 6.57% at the end of 2024, up from 4.51% a year prior. Multifamily delinquencies jumped 75% year-over-year to around $2.8B, Trepp reported. 

More than $38B in CMBS loans were delinquent at the end of 2024, a 41% increase from the beginning of 2023.

Slightly more than $17B in office CMBS debt was delinquent. That equates to 11% of the total office CMBS debt market and surpasses the previous record of 10.7% set in 2012.