CRE Distress Reaches Highest Level Since 2013

The value of distressed U.S. commercial real estate reached its highest level in a decade during the third quarter, Bloomberg News reported. The value of buildings in bankruptcy, repossessed by lenders or in the process of liquidation increased by a net $5.6 billion during Q3, according to data from MSCI Real Assets. Office properties alone accounted for 41% of the $79.7-billion total.

The office sector, buffeted by remote work and declining tenant demand for space, “continued to be the driving force behind growing distress, providing 93% of the additional balance for the quarter,” MCSI said in a report.

Although the level of CRE distress is still less than half of that reached in the depths of the global financial crisis, MSCI identified $215.7 billion of properties that are potentially troubled, citing issues such as delinquent payments or slow lease-ups.

Apartment buildings accounted for almost a third of those at-risk properties. That tally is “likely a function of the greater number of multifamily assets” rather than erosion of the sector itself, MSCI said.

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