The Buildings Are Full. The Loans Are Failing.

Nice building.

You signed the lease last year. Thirty units, new lobby, a courtyard with a grill. Upstairs, in the finance office, the owner has a problem. The loan comes due in four months. Nobody will refinance it.

I’ve been watching this corner of the market for months.

In September, the delinquency rate on multifamily CMBS loans hit 8.04%. It crossed above the overall CMBS rate. First time since the Covid shutdowns.

Two years ago, that rate was 3.33%. It more than doubled.

Apartments were the safe asset class. When offices fell apart, investors moved money into multifamily. People always need a place to live. That was the logic.

But the owners need to refinance their loans, too. Lenders wrote many of those loans at 3%… and today’s bridge rates start at 8%.

The buildings are full and the tenants pay rent. The debt costs more than the property earns.

So much for the safe bet.

The stress in apartment lending starts with a date on a contract.

Borrowers took short-term floating-rate loans during the 2021-2022 acquisition boom. Rates sat near 3%. Those loans now reach their maturity dates.

About $757 billion of apartment loans mature between 2026 and 2028, per MBA data. Roughly $297 billion come due this year. Another $223 billion come due next year.

Today’s bridge rates run 8% to 11% all-in. A loan that cost $3 million a year at 3% costs $8 million to $11 million now.

In August, 81% of newly delinquent CMBS balances were non-performing matured balloon loans. These are borrowers who reached the end of their loan term and could not pay off.

The loans don’t default because the buildings are empty. Tenants fill every unit. Rents come in every month. But the debt service exceeds the income.

And here’s where it spreads.

Texas CRE foreclosure sales hit $818 million in March. That was the fourth consecutive month above $800 million. Apartments made up nearly 70% of the properties.

S2 Capital, a Dallas-based apartment syndicator, faces $218 million in foreclosure exposure and $250 million in CMBS special servicing.

S2 used short-term floating-rate debt to buy and renovate apartment complexes. When rates rose, the firm tried to buy time by restructuring into a private REIT. That failed.

Trinity Investors, S2’s feeder fund manager, told investors to expect a full loss of equity.

In Texas, 63.2% of multifamily loans were distressed as of February 2025.

Meanwhile, the stress extends past private lending.

Freddie Mac’s multifamily serious delinquency rate hit 0.64% in August. That’s the highest in more than twenty years. It’s above the Great Recession peak.

The rate was 0.12% in December 2022. It more than quintupled in less than four years.

Fannie Mae’s multifamily delinquency fell to 0.60% in the second quarter of 2026, down 18 basis points from the first quarter.

Agency-backed loans carry strict underwriting standards. When the agency book starts to break, the stress has moved past the edges.

Banks, the GSEs, life companies, and CMBS together hold more than 80% of commercial mortgage debt outstanding.

Three more things worth keeping track of…

Bank OZK, the largest construction lender in the US, gave IQHQ a six-week extension on a $915 million construction loan for a research campus in San Diego. The maturity moved to October 9. Citi analysts called it “not a long-term solution but rather a brief forbearance period.” The bank’s stock fell 5% this week. OZK has since capped new loans at $500 million. Its Q3 earnings call on October 21 will need to address the outcome.

Japanese REITs trade at roughly 0.85 times net asset value, even as Tokyo office vacancy fell to 2.2% and rents grew 8% year-over-year. J-REIT acquisition volume fell 41% year-over-year in the second quarter of 2025 as rising JGB yields drag unit prices. The gap between physical rents and public REIT pricing mirrors the wider CRE story: the buildings work, the financing doesn’t.

Trepp reported in August that multifamily property insurance rose 58% over five years, the fastest-growing major expense for apartment landlords. The Federal Reserve found per-unit insurance costs jumped 75% between 2019 and 2024. Insurance now takes roughly 8% of apartment operating expenses, nearly double its share five years ago. In Sunbelt and coastal markets, the math is worse. We’ll see.

In 2006, Tishman Speyer and BlackRock paid $5.4 billion for Stuyvesant Town-Peter Cooper Village in Manhattan. Nobody had ever paid more for a single residential property.

The complex had 11,250 apartments. Most carried rent-stabilized leases.

They financed it with $3 billion in CMBS and $1.4 billion in mezzanine debt. The equity was thin.

The bet: deregulate the rent-stabilized units and raise rents fast enough to cover the debt. A lawsuit blocked the deregulations. The rents never reached the underwriting.

In January 2010, Tishman Speyer and BlackRock defaulted on $4.4 billion. They handed the keys to creditors.

The property’s estimated value at that point: $1.8 to $1.9 billion. Down 66% from the purchase price.

The buildings were full. Tenants paid rent every month. The debt cost more than the property earned.

CalPERS lost its equity. Hartford Financial lost its debt position. Five years later, Blackstone and Ivanhoé Cambridge took the complex for $5.3 billion, at lower leverage.

Today, apartment borrowers across the country face the same setup. They borrowed at 3%. They bet on rising rents. The rents didn’t rise fast enough. The rates did.

The math hasn’t changed. We’ll see.