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Is the Multifamily Distress Wave Finally Here?
We're seeing more reports of distressed apartment deals, but a deep dive into the data suggests it may not be as systemic as some think.
Jay Parsons
July 30, 2026
Today’s edition sponsored by: JPI, Authentic, TeleCloud, and The Kirkland Company.
Distress is real, rising and … overstated. What is the actual scale?
We’re starting to see more and more multifamily distress in the news, and with that comes some understandable reactions ranging from “I told you a storm was brewing!” to “This is the tip of the iceberg!” to “This is investor fraud!!!”
So, given all the noise, I want to offer up 10 thoughts with data and context for consideration:
#1: The distress you see right now probably isn’t because of something happening here in 2026.
It’s because of what happened in prior years. Investors bought deals at peak prices with floating rate debt when rates were low and supply wasn’t yet a headwind to rents. Rates spiked and supply spiked, then rents fell and values fell. This process started 3-4 years ago, and it’s taken some time to play out, but it’s not because of anything here in 2026. In some cases, the sponsors have been in a tight spot for months/years, and the only real “news” is that the lenders are finally running out of patience/runway.
#2: It was always a matter of “when,” not “if.”
For the reasons mentioned above, we’ve all been waiting on more distress to hit the market. It’s taken longer than some of us expected to play out, but it’s happening and more is coming. I even noted this among my predictions for 2026, and I’m sure I wasn’t the only one. If there’s any surprise, it’s that distress a) has taken so long to emerge and b) is still fairly limited.
#3: Multifamily distress is real, but it’s not systemic. It’s potentially 5.7% of the debt market.
MSCI RCA estimates current outstanding distress totaling $27.8 billion and “potential distress” at $115.3 billion. Adding those together is obviously a big number, but for context, it amounts to just 5.7% of the $2.5 trillion multifamily debt market. And most of that is only “potential,” meaning some share of that won’t end up actually distressed. I do not want to downplay the impact of 5.7%, particularly for those tied into those deals, but it’s a stretch to suggest it’s a systemic issue.
#4: Much distress is concentrated in CMBS and CLOs, but those categories represent just 3% of multifamily debt.
When you drill down into distressed deals making news, you find common themes: Deals bought at peak using short-term floating rate debt, often value-add, and often with higher-risk CLOs or CMBS. And when I read articles about rising distress, I find most of them focus very narrowly on CMBS (with a delinquency rate of 7.23%, according to Trepp). That’s a real pocket of concern; however, asset-backed securities (the Fed’s broad category for these types of loans) comprise just 3% of all multifamily debt in the U.S., excluding Fannie and Freddie.
In other words: The types of loans getting the most attention happen to be a small segment of the debt market.
#5: Distress remains minuscule among the two largest lender types, GSEs and banks, though trending up slightly (which is more visually obvious with very zoomed-in chart axes).
The biggest lenders (Fannie and Freddie) are reporting far milder numbers than CLOs and CMBS, as are banks. For May, Freddie reported multifamily delinquency of 0.47%, while Fannie reported its “multifamily serious delinquency rate” was 0.56%, which they said was down 6 bps. Both are up slightly from years past, but it still looks minuscule unless you’re committing chart crimes with a very zoomed-in Y axis (as some do). The same is true for banks, where overall delinquency measured 1.47%, according to CRED iQ analysis of FDIC data. That’s up from the 2019 low point of 0.21%, but well below the GFC-era high of 5.90%.
#6: It may still get worse before it gets better, but …
… it’s difficult to see a non-doomsday scenario where distress gets truly systemic – particularly now that values appear to be stabilized following sharp declines in 2023-24. MSCI RCA reported year-to-date apartment pricing flattening (-1.7%) through the first half of 2026, as was the case in 2025. That’s not to say it can’t happen. But with the primary headwind to rents now tailing off (supply), affordability improving and interest rates at least holding steady-ish, it’s reasonable to assume the worst may be behind us.
#7: Not all distress = fraud.
When distress hits the news, there are sometimes voices out there suggesting illicit behaviors at play. I don’t know enough to comment on any specific case, and I won’t. And obviously fraud does happen, unfortunately, and we’ve seen some of that across business, government and even non-profits. BUT bad bets happen, too. Sometimes, honest people make bets that turn out badly. That can happen with any type of investment, and real estate is no exception. You can do everything by the book and still get it wrong. We’ve seen deals go wrong with sponsors of all types and sizes, from local syndicators to global institutions. Real estate investing is not risk free.
#8: Notably, there’s still a (relative) lack of real distress in the one category that every would-be distress buyer has been waiting on – newer-vintage, well-located Class A deals.
Not that those owners are sitting comfortably these days, but they’ve benefited from two big factors. One: Buyers with capital favor this category, which keeps pricing relatively stable (from 4s to low-5 cap rates, generally speaking), while cap rates have generally risen more for older-vintage deals. Two: There may be better refinancing opportunities for Class A owners, allowing them to wait out better days a bit longer. As I wrote earlier this year (and I don’t think this has really changed), if you’re waiting on big discounts for well-located Class A/B+ deals, you’re probably going to stay on the sidelines.
#9: Abundance of multifamily debt is allowing owners to kick the can down the road.
The wide availability of apartment debt has been a stabilizing force for apartment values, while simultaneously limiting apartment trades – depriving would-be buyers salivating for Class A distress. Newmark reported that multifamily loan originations in Q1’26 ranked as the second-highest Q1 on record behind only Q1’22. Like in past cycles, debt capital (and from nearly all types of lenders) has muted the impact of the so-called “wall of maturities,” particularly for higher-quality and better-located apartment deals. Some prognosticators think we’re just kicking the can down the road until 2-4 years, and that may be so, but a lot can change in that time period. I wouldn’t necessarily assume bargain shopping becomes widely available at that point, either.
#10: Where might we see more distress?
I suspect more distress is coming, even if not systemic. And there’s a category that I’m watching most closely – older-vintage apartments in lower-income submarkets, particularly in higher-supplied growth markets where we see a flight to quality occurring thanks to abundance of new supply. We saw such dramatic cap rate compression in the last cycle where there was a narrower-than-usual gap between Class C deals in challenged submarkets and Class A deals in the most desirable submarkets. That gap appears to be correcting.
Additionally, these deals are more likely to have deferred maintenance costs and rent roll challenges (higher rent-to-income ratios due to lower renter incomes), which could further impact pricing. For current owners hanging onto these types of deals – particularly if they have a busted value-add plan and maturing debt – it may still be a turbulent path forward. And the question remains: With so many buyers of these types of deals from 2021-22 now sidelined, who will emerge as the buyer pool, and at what pricing? We’ll see.
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— Now Spinning on The Rent Roll Podcast —
For 2025, The Rent Roll with Jay Parsons podcast ranked in Spotify’s top 2% of podcasts for minutes played and in the top 1% for most shared shows. Additionally, The Rent Roll continues to frequently rank on Apple’s charts for investing-themed podcasts, and was recently ranked as the third-best podcast in all commercial real estate (and #1 in housing) by the readers of CRE Daily!
Thank you to everyone who’s made The Rent Roll part of your weekly routine! New episodes are released every Thursday morning.
Episode 95: Less Red Tape, More Supply with former U.S. FHA Commissioner Frank Cassidy
Episode 94: Renter Demographics Update with JBREC’s Chris Porter
Episode 93: Accidentally Institutional with 7 different mid-sized SFR/BTR operators
Episode 92: Mid-Year Multifamily Update with Greystar’s Quinn Eddins
Episode 91: When Will Rents Recover? “It Depends,” with Bridge’s Matt DeGraw
Episode 90: Inside the ROAD to Housing Act with U.S. Congressman Josh Harder
Episode 89: Inside UDR Apartment REIT with UDR’s Dave Bragg
