• CRE Daily
  • Posts
  • CRE Distress Climbs to $94.2B in Q2 Driven by Office and Apartment

CRE Distress Climbs to $94.2B in Q2 Driven by Office and Apartment

Total cumulative U.S. commercial property distress hit $94.2 billion in Q2 2024, increasing by $2 billion from the previous quarter, according to MSCI's Capital Trends US Distress Tracker.

Together with

Good morning. According to MSCI's Capital Trends US Distress Tracker, total cumulative U.S. commercial property distress hit $94.2 billion in Q2 2024, increasing by $2 billion from the previous quarter.

Today’s issue is brought to you by GSH Group—a concierge approach to owning multifamily real estate.

🎧️ Episode 3 of No Cap is now live! Jack and Alex delve into the latest commercial real estate headlines, including Biden's Rent Control Proposal, multifamily delinquencies, the economy, and more.

Market Snapshot

S&P 500
GSPC
5,459.10
Pct Chg:
+1.11%
FTSE NAREIT
FNER
771.81
Pct Chg:
+1.17%
10Y Treasury
TNX
4.164%
Pct Chg:
-0.035
SOFR
1-month
5.34%
Pct Chg:
0.0%
*Data as of 7/26/2024 market close.

property distress

CRE Distress Climbs to $94.2B in Q2 Driven by Office and Apartment

rising distress multifamily and office

According to MSCI's Capital Trends US Distress Tracker, U.S. commercial property distress reached $94.2 billion in Q2 2024, up $2 billion from Q1.

Growing distress: The quarter saw $10.6B in new distress, with $8.6B resolved. Office properties lead in distress, accounting for $41B, followed by retail at $21.8B. The apartment sector faced $14B in distress, while the hotel and industrial sectors experienced $13.3B and $1.7B, respectively.

Zoom in: The potential distress balance reached $201B, with apartment assets topping the list at $56.9B, followed closely by the office sector at $50.9B. Notably, San Francisco's 3,165-unit Parkmerced added nearly $2B in new apartment distress after its April transfer to a special servicer.

Top markets: San Francisco's distress was led by apartments, unlike most markets dominated by office issues. In NYC boroughs, apartments made up 60% of total distress. Manhattan is the top distress market nationally due to office sector woes, while Chicago has the second highest office distress at $4B.

Handing back the keys: The value of real-estate-owned (REO) properties, which are assets reclaimed by lenders through foreclosure, increased. In Q2 2024, the cumulative total of REO properties rose by 13% from the previous quarter and surged 46% compared to the same period last year.

➥ THE TAKEAWAY

Big picture: While the office sector remains a major source of commercial real estate distress, but the apartment market is catching up, driven by remote work trends, urban exodus, housing oversupply, rent control, high costs, and income inequality, especially in San Francisco and NYC.

TOGETHER WITH GSH GROUP

GSH’s Equity Fund I Targets 18% Annualized ROI

Seize opportunities in distressed multifamily markets with The GSH Group’s preferred equity fund, focusing on well-established deals with active stabilization. Targeting an 18% annual ROI, your principal and preferred returns are prioritized over other equity for distributions and at a refinance or sale that produces excess cash.

Deal highlights:

  Robust returns: Targeted 18% annual ROI
  Efficient timeline: Expected 2-3 years
  Priority payments: Preferred position in equity

The GSH Group boasts a proven track record of nearly 10,000 multifamily units and an average of 22% IRR across 15 full-cycle deals.

Ready to maximize your returns?


✍️ Editor’s Picks

  • Skyrocketing prices: Starter homes now cost $1 million in 237 U.S. cities, highlighting a dramatic rise in entry-level home prices over the past five years.

  • Mega-expansion: Pompano Beach's massive 225-acre development, The Pomp, aims to add 4,000 homes and extensive retail, office, and entertainment spaces.

  • Mr. acquisition: Mr. Cooper is acquiring Flagstar’s mortgage operation for $1.4 billion, adding 1.3 million customers and $356 billion in assets to its portfolio.

🏘️ MULTIFAMILY

  • West Coast exit: Wood Partners, the nation's fourth-largest apartment developer, is closing its West Coast operations, citing difficulties in building housing in the region.

  • High-Rise: Core Spaces is advancing a 26-story student housing tower near UC Berkeley, pending approval. The tower will feature 456 units, retail space, and a sustainable design.

  • Land Use: Dallas' ForwardDallas 2.0 land use plan advances to the city council, sparking debate over its potential impact on single-family neighborhood zoning amid an affordable housing shortage.

  • Tampa bet: Fannie Mae grants a $77 million loan to Daniel Corp for The Mav in Tampa’s Channel District, providing extra time for lease-up and stabilization amid rising interest rates.

🏭 Industrial

  • Slowdown: U.S. industrial construction saw a significant decline in 1H24, with only 97.8 million square feet (MSF) of new space starting construction compared to 147 MSF last year.

  • On the rise: Despite higher interest rates curbing new construction, Chicago's industrial real estate market has decreased vacancy rates and significant build-to-suit activity.

🏬 RETAIL

  • Wealthy appeal: McDonald's new CosMc's concept is attracting wealthier customers with its upscale, drive-thru-only offerings.

  • Tech-driven: The American Dream megamall is using AI and data analytics to optimize customer experience and store operations.

  • Blocked: A judge last week has paused the $25B Kroger-Albertsons merger after Colorado Attorney General Phil Weiser argued it would harm competition, consumers, and workers.

🏢 OFFICE

  • Turnaround: Feil Organization surrenders 730 North Franklin Street to Beltway Capital via deed-in-lieu of foreclosure, with R2 investing to revitalize the struggling office space into smaller, rentable suites.

  • New campus: Westwood US, affiliated with UK's Wellington College, buys a former Airbnb office in San Francisco for $24M to establish Hiba Academy, a Chinese-American prep school.

  • Discount deal: L.A.-based BH Properties is set to purchase the half-empty 117,000-square-foot office building at 989 Market St. in San Francisco for $13.5M, an 80% discount from its $61.3M valuation a decade ago.

🏨 HOSPITALITY

  • Regulation: A new bill in NYC aims to regulate nonunion hotels by banning them from outsourcing key functions, igniting strong reactions from both hotel owners and the Hotel and Gaming Trades Council.

  • Loan monitoring: A $22.4M loan on the Fort Lauderdale Marriott North has entered special servicing due to a December maturity and increased expenses impacting cash flow.

📈 CHART OF THE DAY


Share CRE Daily + Earn Rewards

You currently have 0 referrals, only 1 away from receiving B.O.T.N Multifamily Deal Screener .

What did you think of today's newsletter?

Login or Subscribe to participate in polls.

Reply

or to participate.