Multifamily Late Loan Payments Uncharacteristically Spike in Sept.

Cracks continue to emerge in the apartment sector.

Moody’s Analytics REIS recently reported a spike in late payments in the multifamily sector for both agency and non-agency loans. 

In September, late payments for agency loans rose to 1.4% from 0.46% in August. Non-agency late payments rose from 1.83% in August to 2.78% in September.

“Now, thirty days of performance does not make a trend, but the magnitude of change is noteworthy. Nevertheless, the amount of the change is minuscule relative to changes we have witnessed in loans for retail and lodging properties,” according to REIS. “We will be watching this carefully as remits come in this month and thereafter.”

As Moody’s Analytics Reis tracks the market, it is not only monitoring delinquencies but also changes in occupancy. Watching for occupancy can be tricky, however, it notes. Not all multifamily properties report every quarter, and reporting can be delayed. While knowing occupancy is helpful, some properties can withstand shifts better if they have less leverage or higher rents.

Moody’s Analytics Reis is monitoring loans that have reported vacancies as of June 30. It has a pool that represents about a third of the respective outstanding balance. In this pool, which includes agency and non-agency loans, about 3% shows at least a 10% drop in occupancy compared to its vacancy, as reported in its last full year, mostly December 31, 2019. 

Moody’s Analytics Reis did not know when the occupancy drop occurred. If it happened early in the quarter, it would be reflected in quarterly financials. Otherwise, it wouldn’t be reported until next year.

Throughout commercial real estate, landlords have been challenged to make rent payments. The special servicing rate hit its highest mark since May 2013, increasing 44 basis points to 10.48% in September, according to Trepp. In August, the rate was 10.04%.

While retail and lodging drove the increases, multifamily special servicing rates rose 10 basis points to 2.66%.

Michael T. Fay, principal, managing director and global head of Avison Young’s asset resolution team, expects to see more issues in multifamily. “What is going to be interesting is what happens to multifamily with the expiration of the unemployment money that was coming out from the stimulus packages,” he says.