Delinquencies Rise for Commercial and Multifamily Loans as CMBS Faces Pressure

The commercial real estate market is showing signs of strain, with delinquencies on commercial mortgages rising in the second quarter of 2025, according to the latest Commercial Delinquency Report from the Mortgage Bankers Association (MBA). The report highlights a notable uptick in delinquencies, particularly within the Commercial Mortgage-Backed Securities (CMBS) sector, which is facing growing pressure, especially from multifamily and office properties.

Delinquency Trends and Their Drivers

Reggie Booker, MBA’s Associate VP of Commercial Real Estate Research, pointed out that “the delinquency rate for commercial mortgages increased in the second quarter of 2025 across most major capital sources.” CMBS loans were particularly affected, with multifamily and office properties experiencing the highest increase in delinquencies. This trend indicates a broader market concern, with property type, loan structure, geographical differences, and borrower profile all playing significant roles in the shifting delinquency rates.

The MBA tracks delinquency rates across five key capital sources, including commercial banks, thrifts, CMBS, life insurance companies, and government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. Together, these entities own about 80% of the outstanding debt in commercial mortgages, providing a comprehensive view of the state of commercial real estate financing.

Key Insights from the Delinquency Data

The delinquency rates at the end of Q2 2025, based on the unpaid principal balance (UPB) of loans, were as follows for each capital source:

1. Banks and Thrifts: 1.29%
   • A slight increase of 0.01 percentage points from Q1 2025. This category tracks loans that are 90 days or more delinquent or in non-accrual status.
2. Life Insurance Portfolios: 0.51%
   • An increase of 0.04 percentage points from the first quarter of 2025. These loans are considered delinquent if they are 60 or more days past due.
3. Fannie Mae: 0.61%
   • A slight decrease of 0.02 percentage points from Q1 2025, showing some stabilization in GSE-backed loans, despite broader market concerns.
4. Freddie Mac: 0.47%
   • A slight increase of 0.01 percentage points from Q1 2025. Similar to Fannie Mae, these loans are categorized as delinquent if 60 or more days past due.
5. CMBS: 6.36%
   • This marks a 0.45 percentage point increase from the previous quarter, and represents the largest jump in delinquencies. CMBS delinquencies are tracked for loans 30 or more days past due or those in Real Estate Owned (REO) status, where the lender has taken possession of the property.

The significant rise in CMBS delinquencies, particularly in the multifamily and office sectors, reflects ongoing challenges facing these property types in today’s economic environment, including concerns over rising interest rates and fluctuating demand in both sectors. While CMBS is traditionally a stable source of capital for commercial property investments, it has recently been under increasing pressure as investor sentiment turns cautious in response to macroeconomic uncertainties.

Challenges with Commercial Development Loans

While the report focuses on the more traditional categories of commercial real estate (such as office buildings and multifamily housing), it’s important to note that loans secured by owner-occupied commercial properties or single-family residential development projects are often excluded from these figures. These loans, although critical to the overall real estate market, are categorized differently and are usually tracked in FDIC delinquency rates for bank-held mortgages. This distinction means that commercial development loans especially those related to single-family housing can have a significant but often unreported impact on broader commercial market trends.

Looking Ahead: What This Means for the Market

The rise in delinquencies, particularly in CMBS-backed loans, suggests that commercial real estate is feeling the pressure from a combination of factors, including economic slowdown, rising interest rates, and evolving investor sentiment. These factors are pushing borrowers in some sectors, particularly multifamily and office spaces, into more precarious financial positions.

For lenders and investors, understanding these trends is crucial for adjusting strategies and expectations. While the overall level of delinquency remains lower than pre-pandemic highs, the recent upward trajectory in delinquencies signals that commercial real estate is navigating a more challenging landscape.

The multifamily sector, for example, continues to face pressure from a combination of reduced demand for office space conversions and fluctuating rental markets. Meanwhile, office buildings, especially in urban centers, have been impacted by the shift to remote and hybrid work models. These factors are putting more commercial loans at risk of default, which could further strain the CMBS market in the coming months.

Key Takeaways for Commercial Real Estate Stakeholders

• CMBS Delinquencies Are Rising: A sharp increase in delinquencies within CMBS, particularly in the multifamily and office sectors, signals broader challenges for these property types, which are facing reduced demand and rising costs.
• Banks and Thrift Lenders Remain Stable: While there has been a slight uptick in delinquencies, commercial banks and thrifts are experiencing relatively stable delinquency rates, which suggests more resilience in traditional lending channels.
• Market Volatility and Risk: As the housing market continues to navigate economic uncertainty, lenders and investors must remain vigilant about borrower profiles and property types. Delinquency trends are heavily influenced by geographic factors and market conditions, making localized insights essential for effective risk management.
• Focus on Early Warning Systems: The increase in delinquencies highlights the need for lenders to employ more stringent early warning systems and monitor property performance closely. With borrower defaults rising, understanding the underlying causes of delinquencies such as economic conditions, interest rate changes, and sector-specific challenges will be key to navigating this period.

As we move further into 2025, commercial lenders will need to remain proactive in adjusting their strategies. While delinquency rates are still manageable, the upward trend is a clear indicator that caution is warranted, especially for investors with significant exposure to CMBS and multifamily markets. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.