Courtesy of Hughes Commercial
A new report just confirmed what many in the industry have been feeling: pressure is building in the commercial real estate market.
Mortgage delinquencies across nearly every property type rose in Q1 2025, according to the latest data from the Mortgage Bankers Association. It’s the third straight quarter of increases, and the trend is becoming too big to ignore.
Here’s what stood out:
Overall delinquency rates rose across CMBS, banks, and life companies.
Office delinquencies jumped from 5.8% to 6.6%, the highest among major property types.
Retail saw the second-biggest increase, with regional malls and older strip centers showing signs of stress.
Industrial and multifamily remain more stable—but are no longer immune.
So what’s behind the uptick?
It’s not one single issue—it’s a mix:
High interest rates continue to weigh heavily on borrowers, especially those facing upcoming maturities.
Lender tightening has made refinancing difficult, even for stable assets.
Asset values have reset, in some cases dramatically, especially in office and transitional retail.
Meanwhile, operating costs (insurance, maintenance, capital reserves) continue to rise, pinching NOI.
Put simply: many property owners are getting squeezed from both ends—unable to refinance on favorable terms, and unable to push rents or occupancy enough to offset the debt burden.
What This Means for Investors and Owners
First, this isn’t a repeat of 2008. Banks are better capitalized, and the distress we’re seeing is more asset-specific than systemic. But that doesn’t mean there isn’t risk—or opportunity.
We’re entering a period where recapitalizations, note sales, and distressed acquisitions will become more common. Expect to see:
Discounted debt sales from lenders looking to clean up their books.
Owners walking away from assets where negative leverage is too steep to fix.
Partnership restructurings where new capital steps in to rescue viable—but overleveraged—assets.
If you’re a current owner, now is the time to reassess your portfolio:
Do you have assets approaching a loan maturity in the next 12–24 months?
Are you sitting on properties with rising vacancy or declining rents?
Could you benefit from bringing in fresh equity or refinancing before things tighten further?
If you’re an investor, especially one with patient capital, this next cycle could offer a rare buying window—but it will reward the well-prepared. Understanding market dynamics, capital stack pressures, and local demand trends will be key.
Final Thought
The cracks are showing, but this moment could create strong buying and repositioning opportunities for the right players. Whether you’re looking to shore up existing holdings or explore distressed opportunities, now is the time to get proactive.
