The situation is further complicated by rising insurance costs and declining property values. According to MSCI Real Assets, about $95 billion worth of US multifamily properties are currently in distress or at risk of becoming distressed.
This looming debt crisis poses a potential challenge for Wall Street as well, given that many of the floating-rate loans have been bundled into the $80 billion commercial real estate collateralized loan obligation (CRE CLO) market and sold as bonds to investors.
Despite these concerns, investors do not view the commercial real estate market troubles as a systemic risk to the banking sector.
“A large portion of the multifamily world is underwater at the moment,” said Catie McKee, director and head of commercial-mortgage backed securities trading at Taconic Capital Advisors.
While a lot of the equity is gone, McKee said multifamily properties still hold value over time and can recover with the right financial support.
