**The Truth About CRE Distress: Separating Hype from Reality**
Distress in the commercial real estate (CRE) market has become a trending topic across multiple news outlets. Sources have described the situation as a developing “real estate debacle,” with a notable uptick in distress rates, particularly among Commercial Real Estate Collateralized Loan Obligations (CRE CLOs).
However, Marcus & Millichap offers a more measured perspective. In a recent brief titled “Will A Wave Of Distressed CRE Come to Market? Recent Data Offers Important Insights,” the firm’s analysts acknowledge distress but urge market participants not to overreact.
Drawing on data from Real Capital Analytics, the brief highlights that although delinquencies and distress have risen, the numbers remain within manageable bounds — especially when compared to previous financial downturns. For example:
– The Commercial Mortgage-Backed Securities (CMBS) delinquency rate stood at 7.2% in July 2025, up from 5.4% a year earlier. However, this is still below the post-Global Financial Crisis peak of 10.3% in 2012.
– Delinquencies vary significantly by property type. Offices show higher rates near 11%, while industrial assets are relatively stable at just 0.5%.
– Importantly, a missed loan payment does not automatically signal true distress. Not every delinquent account reflects severe financial trouble.
Real Capital Analytics also examined distress beyond CMBS data. While overall distress levels have increased over the past year, improvement is already underway. At the end of Q2 2025, roughly $122 billion in CRE was categorized as distressed — down slightly from the first quarter.
Many investors are sitting on the sidelines, expecting a flood of deep discounts. However, Marcus & Millichap warns that this approach may backfire. Distressed sales made up only 2.6% of total trade volume in the first half of 2025. Meanwhile, funding remains accessible, with lenders often willing to work with borrowers who are maintaining good track records.
The report also cautions that the distressed properties coming to market often face complications — such as deferred maintenance — that inhibit their investment appeal.
The key takeaway: Investors waiting for a perfect storm of distressed assets may end up missing out on quality opportunities. Current market conditions still allow for the acquisition of top-tier properties at favorable cap rates — without the high-risk profile often associated with distressed sales.
In short, while distress in CRE is real, the narrative may be more hype than crisis.
