Understanding the importance of distressed properties is crucial for navigating an unpredictable real estate market. Distressed properties refer to assets whose financial health has deteriorated, meaning the current owner is unable to maintain the property financially.According to data from MSCI Capital Trends US Distress Tracker, the distress balance in the U.S. commercial real estate market surged to $85.8 billion by the end of 2023, marking a substantial increase of $28.9 billion over the year. This upward trajectory, though tempered in pace, is a noteworthy trend in the current market.
Insights from Trepp® CMBS Research highlight the multifaceted nature of distress across segments. Offices dominated distress, constituting 41% of distressed properties. While office properties witnessed a notable uptick, the multifamily sector experienced a significant decline.
The significance of understanding distressed properties goes beyond statistics. It is an indicator of the market’s health and reflects broader economic trends and industry-specific challenges. As the data highlights, the repercussions of distressed assets reverberate through the financial ecosystem, impacting investors, lenders, and communities.
In January 2024, the overall U.S. CMBS delinquency rate rose to 4.66%, a 15-basis-point increase. The office sector, however, experienced a significant spike, jumping 48 basis points to 6.30%. Conversely, multifamily delinquencies dropped, attributing this decline to a sizable 2019 apartment loan disposal. The overall CMBS delinquency rate rose by 172 basis points year-over-year. The CMBS 2.0+ delinquency rate also rose, reaching 4.50%, up 178 basis points compared to the previous year.
The rise in distressed properties underscores the need for vigilance in real estate transactions. In this context, the importance of title insurance becomes evident, providing protection against unforeseen legal issues tied to distressed properties.
Want to learn more? Join us for the first session of our 2024 CLE Title Camp webinar series, titled "Insuring Distressed Property," featuring underwriters Christian Lane & Glen Trowbridge on Wednesday, April 17.
