CRE Foreclosures Intensify: Office, Multifamily See Distress

By Majid Radaei, RadCRE · · Market Updates

Commercial real estate foreclosures are rising, particularly in office and multifamily sectors, signaling a market recalibration. Trepp reports a 5.76% CMBS delinquency rate.

The commercial real estate market is witnessing a measurable increase in foreclosure activity, particularly pronounced in the office and, more recently, certain segments of the multifamily sector. This trend is a direct consequence of higher interest rates, tightening lending standards, and evolving macroeconomic conditions that have impacted property valuations and debt service capabilities.

Rising Delinquency Rates Signal Distress

According to data from Trepp, the CMBS delinquency rate in April 2026 reached 5.76%, a notable uptick from the previous year. While still below the peaks of the Global Financial Crisis, this rise is concentrated within specific asset classes. Office properties continue to bear the brunt, with delinquency rates for CMBS office loans exceeding 8% nationally, and even higher in major metropolitan areas such as San Francisco and Chicago. This is largely driven by persistent vacancies and negative absorption rates compelling owners to struggle with refinancing maturing debt.

For example, in a widely reported case, Brookfield Properties recently saw two of its downtown Los Angeles office towers, Gas Company Tower and 777 Tower, effectively foreclosed upon by lenders in late 2025 after defaulting on over $750 million in debt. Similarly, Starwood Capital Group has reportedly faced distress on various office holdings, including substantial loan maturities it has struggled to refinance.

Multifamily Sector Facing Headwinds

While often seen as resilient, parts of the multifamily market are now also experiencing increased distress. Overleveraged properties acquired at low cap rates during the ZIRP era, coupled with rising operating costs and some softening in rent growth in certain submarkets, are contributing to defaults. The Mortgage Bankers Association (MBA) reported an increase in multifamily loan delinquency rates in Q1 2026, particularly for some securitized loans and bridge debt that needs to be refinanced at significantly higher rates (current SOFR ~4.31%).

Distressed multifamily assets have begun to appear on auction blocks. A recent example includes a 300-unit multifamily complex in Phoenix, which was reportedly foreclosed and sold at a significantly discounted price compared to its 2021 acquisition value, reflecting the repricing of risk and higher cost of capital.

Auction Trends and Investor Appetite

The uptick in foreclosures is leading to a growing pipeline of properties heading to auction, both judicial and UCC sales. Investor appetite for these distressed opportunities is bifurcated. Opportunistic funds, particularly those with dry powder like Blackstone and KKR, are actively seeking to acquire quality assets at discounts. However, the bid-ask spread remains wide, as sellers often hold out for values based on prior market conditions, while buyers are underwriting to today's higher cost of capital (bridge loans at SOFR + 300-600 bps; mezzanine at 12-18%).

Market analysts from Green Street Advisors suggest that while transaction volumes remain muted overall, distressed sales could provide a significant boost in the latter half of 2026, as more lenders push troubled assets to market. The hotel sector, which experienced early distress during the pandemic, has largely seen a recovery in performance metrics (e.g., U.S. RevPAR exceeded 2019 levels as early as 2022), but specific full-service properties with heavy debt loads are still facing refinancing challenges, leading to some selective distress.

RadCRE Perspective

Majid Radaei, Founder of RAD Commercial Realty, notes, "The current wave of foreclosures, while challenging for some owners, presents compelling opportunities for well-capitalized investors. We're seeing a clear bifurcation: prime, well-located assets, particularly in hospitality and value-add multifamily, that can demonstrate resilient cash flow are still attracting strong capital. However, for properties purchased at peak market valuations with short-term, floating-rate debt, the refinancing squeeze is real. Our clients are actively evaluating these distressed opportunities, leveraging our access to bridge and preferred equity providers to capitalize on discounted acquisitions. The key is distinguishing between truly distressed but fundamentally sound assets and those facing incurable obsolescence – our underwriting focus is sharper than ever on evaluating true value and sustainable debt service coverage across different capital structures, whether it's through agency debt for qualifying multifamily or selective CMBS for stabilized income streams."

As the market continues to recalibrate, understanding these trends and having access to specialized financing and advisory services are critical for navigating the evolving landscape of commercial real estate. RadCRE specializes in assisting clients with value-add acquisitions and distressed asset strategies, providing robust underwriting and capital solutions to capitalize on these emerging market dynamics.

Tags: commercial real estate foreclosures, CRE distressed assets, office market distress, multifamily market trends, CMBS delinquency, RadCRE

Sources: Trepp, Mortgage Bankers Association, Green Street Advisors, CoStar Group, Commercial Observer