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Commercial Mortgage REITs Face Declines in Credit Quality, Loan Volume
Credit quality at commercial mortgage REITs (CMREITs) continued to deteriorate in the first half of 2024, according to a new report by Fitch Ratings. The rating agency estimates that the largest 10 CMREITs collectively funded $5.3 billion in originations or existing commitments, flat from the first half of 2023 and well-below 2021 and 2022 levels. Combined with ongoing loan-write offs, gross loan balances have fallen to around $94 billion for the group, down 11% from 2022 peak levels.
Meanwhile, earnings declined amid smaller balance sheets, compressed net interest margins and higher provisions. Reported pre-tax income for the largest CMREITs was around $600 million for the trailing 12 months ended June 30, down from $2 billion the year prior.
“Problem loans now make up close to 15% of gross loans, for the top 10 largest CMREITs,” said Fitch senior director Bain Rumohr. “As such, we expect these firms to be focused on asset resolution efforts in the near-to-medium term, which may include foreclosure.”
- ◦Financing
