Although office properties continue to struggle, there was a silver lining as six distressed office loans were fully resolved in September, totaling $137.9 million. Notable cases included Excelsior Crossing, a loan with no loss on its original $88 million balance, and HSBC-Brandon, Fla., where the loss hit 53.5% on a $17.8 million loan. Despite these resolutions, distressed office loans still amount to $11.3 billion.
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Retail properties experienced the sharpest rise in distress, increasing by 41 basis points to 8.51%. Among the most significant new retail loans added to the distress pool were Colorado Mills at $118.9 million and Coastal Grand Mall at $99.3 million.
Meanwhile, multifamily properties stood out as a rare bright spot, seeing the largest improvement in their distress rate, which fell by 30 basis points to 7.2%. Despite this decrease, the total amount of multifamily distress remained mostly unchanged month-over-month. The reduction in the distress rate was largely driven by new issuance activity in the multifamily space.
Overall, the commercial real estate market continued to experience challenges, with a rising number of distressed properties across key sectors, especially in office and retail. However, the resolution of some distressed office loans may signal that valuations in the office market have reached a point where transactions between sellers and buyers are becoming more feasible.