The Fog of CRE

The U.S. commercial mortgage-backed securities (CMBS) delinquency rate climbed for the fifth consecutive month in July, rising 10 basis points to 7.23%, according to Trepp’s latest research. Office properties remain the most distressed sector, with delinquencies at 11.04%. The multifamily sector added further pressure, as delinquencies rose 24 basis points to 6.15%. Retail and lodging provided some offset, with delinquency rates easing to 6.90% and 6.59%, respectively.

Concerns in the U.S. market mirror a broader international warning. The Financial Stability Board (FSB) has cautioned regulators about vulnerabilities in the $12 trillion global commercial property market, according to a Financial Times article from June. The FSB highlighted risks stemming from high debt loads, liquidity mismatches, and limited visibility into banks’ exposure. It also emphasized that commercial property tends to be more volatile than other asset classes, with further stress likely from weakening demand for office and retail space, as well as the growing impact of extreme weather events and energy efficiency regulations. The report included the following charts showing CRE price divergences in different markets:

Source: Financial Stability Board

Analysts are also raising concerns about the opaqueness of data surrounding so-called “extend-and-pretend” practices. In many cases, lenders are choosing to modify or extend loan terms rather than formally recognizing losses on distressed assets. While such measures can buy time in the hope that conditions improve, they also obscure the true scale of distress, making it harder for investors, regulators, and market participants to gauge actual risk exposure. This lack of transparency, coupled with rising delinquency rates, underscores the uncertainty facing both U.S. and global commercial property markets.