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**The Truth About CRE Distress: Insights and Perspective**
Recent headlines have been sounding alarms about a growing wave of distress in the commercial real estate (CRE) market. Some news outlets have gone as far as dubbing it a “real estate debacle,” while others cite rising distress rates in the CRE Collateralized Loan Obligation (CLO) market.
However, Marcus & Millichap is urging the industry to take a deep breath.
In a recently released research brief titled *”Will A Wave Of Distressed CRE Come to Market? Recent Data Offers Important Insights”*, the firm acknowledges increased delinquencies in Commercial Mortgage-Backed Securities (CMBS), but emphasizes that the situation may not be as severe as headlines suggest.
Key takeaways from the report include:
– **CMBS Delinquency Trends**: The overall CMBS delinquency rate rose to 7.2% in July 2025, up from 5.4% in July 2024. Still, it’s significantly below the peak of 10.3% following the Global Financial Crisis in 2012.
– **Sector-Specific Pressure**: Delinquencies are not affecting all property types equally. Offices have been hit the hardest, with delinquencies nearing 11%. In contrast, the industrial sector remains relatively stable, with a delinquency rate of just 0.5%.
– **Misinterpreting Missed Payments**: The report cautions against assuming every missed payment signals imminent distress. Marcus & Millichap notes that a default does not instantly translate into distressed property status.
Additionally, data from Real Capital Analytics suggests the total volume of distressed CRE—beyond just CMBS—is showing signs of stabilization. Approximately $122 billion worth of properties were experiencing distress at the end of Q2 2025. While high, this represents a slight decrease from Q1 figures.
For investors expecting a flood of distressed assets, the report offers a reality check. Distressed sales accounted for only 2.6% of total transaction volume in the first half of 2025. Furthermore, financing remains available. Lenders are still open to working with reputable borrowers, offering workouts to navigate through financial hurdles.
The report also points out that many properties classified as distressed are “fringe cases” burdened with significant issues like deferred maintenance, which can reduce their investment appeal.
Ultimately, Marcus & Millichap warns that waiting on the sidelines for the perfect distress opportunity could be a costly mistake. Investors may miss out on high-quality assets available now at attractive cap rates.
In short, while distress is present in certain pockets of the CRE market, the broader picture is more nuanced—and far less dire—than some headlines suggest.
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