Bisnow.com reports, citing CoStar, "US banks reported delinquencies hit 1.57 percent at the end of last year, a rate not seen since the fourth quarter of 2014."

Putting a number to the percentage, "The 1.57 percent delinquency percentage means more than $47.1B of loans would have been delinquent at the end of the year," writes Billy Wadsack for Bisnow's Dallas-Fort Worth bureau. That's an 88 percent increase from a decade ago.

Delinquencies in CMBS (Commercial Mortgage-Backed Securities) are setting multi-year highs with $38B in arrears at year-end 2024, a 41 percent increase from the previous year end.

In the face of troubling news, those who work in real estate are taking a rosy view, as usual. James Robertson, Jr. writes in the latest Grant's Interest Rate Observer, "Optimism in the industry is the highest it has been in eight years." This industry he calls "illiquid and slow-moving" with cycles that can "drag on for years."

There has been little transaction volume and sellers have held tightly to the valuations and cap rates experienced during days of ZIRP. Likewise, bankers have extended and pretended, hoping the never-before-seen low rates will miraculously return to lift all boats (and buildings).

Fitch Ratings's Melissa Che told Robertson, "As more lower-quality assets, some of which have significantly deteriorated in performance, come to market and trade at relatively low prices, this may trigger an overall reset and further price discovery across various property quality segments."

Distressed market sales nearly doubled to 6 percent in last year's fourth quarter, according to Newmark Group, Inc. Banks are growing more impatient with loan extensions and modifications raising the amount of 2025 debt maturities to $957 billion from $659 billion from 2022. Newmark believes a third of CMBS loans fail to cover debt services.

Robertson focuses on bridge loans (REBLs) whose issuance ballooned in 2021 to $45 billion from less than $9 billion the year prior. Artis Shepherd of Patterson Capital, LLC told Robertson, "Bridge lending shifted around this time into a fairly aggressive product. Some lenders were offering credit at 80 percent-85 percent loan-to-value ratios and underwriting loans based upon proforma rather than actual net operating income."

Shepherd goes on to explain that 2021 bridge lender's loose underwriting included debt service coverage of just 1.0 or 1.05 to pro forma numbers rather than the traditional 1.25 DCR (Debt Service Coverage Ratio). This has come back to bite lenders and REITs.