Stark regional differences have emerged within the CRE market related to distressed loans, as some markets are showing alarming levels of strain while others have remained remarkably resilient, according to a CRED iQ analysis. The study analyzed $341.1 billion in loans across the top 50 U.S. markets, looking for signs of distress, including delinquent loans and those that have been handed off to special services.
The analysis found a cluster of Midwestern and Western markets where this trend was more prevalent. The market with the most distress is Minneapolis-St. Paul-Bloomington, Minnesota-Wisconsin, where nearly 57% of loans were flagged as potentially distressed.
Close behind was the Rochester, New York, market with 44.3% and Portland-Vancouver-Beaverton, Oregon-Washington, with 42.8% falling into the category. Rounding out the top five are Austin-Round Rock, Texas, with 26.7% and Denver-Aurora, Colorado (23.5%).
Several markets had minimal distress, led by Stockton, California, where no loans were found to meet the category. Columbus, Ohio, only had 0.2% of its loans flagged, and San Diego-Carlsbad-San Marcos, California, had the same percentage. The top five least troubled markets with debt included Salt Lake City at 0.6% and Oxnard-Thousand Oaks-Ventura, California, at 0.9%.
“These rankings underscore the uneven recovery in commercial real estate, influenced by factors like office vacancies, economic shifts, and tenant dynamics,” said Cred iQ.
Markets with office-heavy portfolios are especially vulnerable to distress, the data firm noted. Austin’s 7700 Parmer office property is a key example. The 911,570-square-foot asset is backed by a $177 million interest-only loan that matures in December and has been transferred to a special servicer due to an imminent monetary default. With 74% occupancy, including Google, Electronic Arts and eBay, and a debt service coverage ratio (DSCR) of 1.96, the asset looks solid on paper but has been unable to avoid trouble amid broader market pressures, the report said.
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