In a recent video presentation, John Chang of Marcus & Millichap discussed an article that was sent to him by an experienced real estate investor. The article claimed that multifamily distress had nearly tripled in just six months between January and June 2024. Chang, who is the Senior Vice President and National Director of Research and Advisory Services at Marcus & Millichap, was asked if this meant a wave of distressed deals would soon hit the market.
However, according to Chang’s response in the video presentation, he does not believe there will be a flood of distressed deals on the market. He also expressed skepticism about the validity of these doom-and-gloom headlines.
Chang clarified that these alarming statistics were based on data from CRED IQ which includes both performing and non-performing mature debt as well as current special service loans. This means that properties may be classified as “distressed” even if negotiations are still ongoing between owners and lenders or if they are simply underperforming.
Furthermore, just because a property is technically considered “distressed” does not mean it will necessarily end up being foreclosed upon or sold at significantly discounted prices.
On another note, lenders have started selling off high-risk loans from their balance sheets including poorly performing office buildings and weaker retail properties. However ,Chang noted some positive signs such as historically low delinquency rates for various sectors including offices (7.6%), apartments (2/4%), industrial (0/6%)and retail(6/4%).
He also mentioned decreasing interest rates with 10-year Treasury rate currently around 4:25%, down from approximately three months ago when it was at 5%. Additionally,the Federal Reserve has signaled potential rate cuts this year which could further improve market conditions .
Despite acknowledging potential challenges ahead ,Chang believes we may have already seen the worst effects on commercial real estate markets . Therefore,it’s important to dig deeper into data and not just take headlines at face value. Real estate is a long-term investment, so it’s important to look at the bigger picture and consider what the market will look like in the future.
