📢 Delinquencies are no longer isolated outliers. They are compounding. Office maturities are missing refinance exits, pushing defaults higher, while newly delivered and highly levered apartments are cracking under higher rates and flat rents. Resolutions are lagging: in August, $2.5B of office loans went newly delinquent versus $1.3B cured, so pipelines to special servicing are building even as lenders triage via extensions, reserves, and selective note sales. Pricing of CRE credit has shifted accordingly, with risk premiums widest on office-heavy exposures.

Loan Performance
Office defaults are driven by maturity failures, weak re-tenanting, and negative leverage at current rates. Loss severities are rising as collateral values reset 30–50% below 2019 on many CBD assets. Multifamily stress is concentrated in recent deliveries with floating-rate debt and expiring caps; DSCR erosion from flat rents plus higher expenses is pushing loans below 1.0×. Workouts skew to short extensions with interest reserves and cash sweeps, but inflow to special servicing outpaces cures, so the delinquency stock grows.

Demand Dynamics
Office physical occupancy and downsizing reduce backfill velocity and effective rents, extending downtime and raising TI/free rent burdens that depress NOI. In apartments, a supply bulge in Sun Belt metros trims pricing power, elevates concessions, and stalls NOI growth, especially on Class A lease-ups. Retail’s stabilization reflects essential and grocery-anchored centers holding traffic and rents; industrial remains supported by durable logistics demand. This sectoral divergence explains why delinquency pressure is not uniform.

Asset Strategies
Owners with capital are shifting to defense: expense control, credit-focused leasing, and renegotiated vendor contracts to lift margin while preserving occupancy. Office operators are underwriting longer lease-up arcs and heavier TI, while evaluating selective conversions where feasible. Multifamily owners are prioritizing retention over rent pushes, deferring noncritical CapEx, and sequencing value-add to NOI-accretive scopes. Distressed buyers prefer loan acquisitions to gain control at basis that underwrites double-digit unlevered returns.

Capital Markets
Spreads on office-tilted CMBS have widened, lower-rated tranches face downgrades, and balance-sheet lenders are cutting proceeds and raising DSCR floors. Banks are exploring loan sales, pushing price discovery. New originations skew to industrial and essential retail; stabilized multifamily is still financeable at tighter structures. The result is a bifurcated market: safe collateral clears; challenged product prices only at distressed yields or via note sales.

Delinquencies likely grind higher into late 2025 as maturities stack and rate relief remains uncertain. Office could breach 12% if refinance alternatives remain thin; multifamily pressure persists until supply absorption improves and rate caps reset at lower strikes.

Policy remains a wildcard; examiners favor modifications, but systemic relief is not baseline. Expect more loan and note sales to reset values and transfer ownership to better-capitalized buyers. By 2026, tighter structures and lower leverage should stabilize performance, but office delinquency may remain structurally elevated relative to other sectors