Source: Ludwig von Mises Institute
by Artis Shepherd
“At the end of Q4 2024, commercial real estate continued to exhibit severe weakness, with commercial real estate bonds hitting record distress levels, surpassing the previous records reached in Q3 2024. Commercial real estate bonds are just commercial real estate loans packaged into securities and sold to investors. One category of bonds, commercial mortgage-backed securities (‘CMBS’), saw their distress rate increase to 10.6 percent, a fourth consecutive monthly record. Most notably, in the CMBS category — which comprises approximately $625 billion in outstanding commercial real estate debt — loans on office properties now exhibit a distress rate above 17 percent while apartment loan distress accelerated to 12.5 percent. While loans underlying CMBS bonds — which are generally longer-term and fixed-rate — appear woefully insolvent, another group of bonds comprising short-term floating-rate commercial real estate loans are even worse.” (02/20/25)