Troubled 2021 Apartment Loans Could Bring More Distressed Sales Article originally posted on Globe St. on September 24, 2026 Register for Multifamily Owners Forum San Diego The long-anticipated wave of commercial real estate distress has not arrived evenly across the market. But a subset of multifamily loans originated in 2021 is showing clear signs of strain, creating a potential opening for investors equipped to buy properties or debt at a discount. CRE CLO distress reached 28% in August, up from 19% in July, according to CRED iQ data cited by The Wall Street Journal. Because CRE CLOs typically carry floating rates, borrowers are particularly exposed when borrowing costs rise. The Federal Reserve’s quarter-point rate increase last week, along with a roughly 5% 10-year Treasury yield, adds to the pressure on properties already struggling to produce enough income to service debt. For investors seeking distressed opportunities, the key issue is not a broad-based collapse in apartment fundamentals. It is the growing divide between properties that can refinance or sustain higher debt costs and those that cannot. Loans made in 2021, when financing conditions and operating assumptions were markedly different, appear especially vulnerable. A 2021 Loan Pool Shows The Pressure One portfolio highlighted by the Journal, FS Rialto 2021-FL3, illustrates how quickly the stress can build. The CRE CLO initially included 26 floating-rate mortgages. Eight have since been paid off, leaving 18 loans backed by 17 multifamily properties and one hotel. More than half of the remaining loan balance (53%) is delinquent. CRE CLOs are often structured with an initial three-year maturity and two one-year extension options. That means some loans originated in 2021 could be nearing their final maturity dates. Borrowers facing debt-service shortfalls, weak property income and limited refinancing options may have fewer ways to avoid a sale, loan modification or other resolutions. That timing could matter for distressed buyers. The broader CRE maturity wall has not produced a single, marketwide reckoning, but loan vintages facing maturities now may be more exposed than those with additional time or stronger property-level cash flow. Property Income Falls Short Of Projections The strain is apparent at the property level. Ashcroft Capital borrowed against five apartment buildings in Georgia and Texas, according to Morningstar estimates cited by the Journal. First-quarter rents averaged $1,423, well below the $1,953 projected by the lender. Current cash flow covers only 57% of debt service. The Morgan, a 1984-built apartment property in Austin, provides another example. CAF Capital Partners bought the property in 2021 when it was 65% occupied. Supply growth in the Austin market has intensified competition, limiting the property’s ability to raise revenue. The property now generates enough revenue to cover only 15% of its mortgage payment, according to the Journal. The borrower has halted renovation work, a decision that may further complicate efforts to improve the asset’s performance. These cases show why distress may emerge first in properties where higher-rate debt intersects with weaker-than-expected rents, heavy new supply or renovation plans that no longer produce the returns underwriting assumed. Modifications May Not Be Enough Owners of distressed multifamily properties generally have two primary options: negotiate a loan modification or hold on, hoping lower rates improve the refinancing outlook. In the current environment, neither route appears assured. Higher rates have increased debt-service burdens for floating-rate borrowers, while operating challenges have constrained the income growth needed to offset those costs. In workforce housing, in particular, owners may have less room to push rents after renovations. “It has reached a point where upgrading units in workforce apartments doesn’t necessarily drive a monthly rent premium,” Alex Killick, managing director at CWCapital Asset Management, told the Journal. That dynamic can leave owners with a difficult choice. They can invest additional capital in improvements without confidence that rents will justify the expense or they can defer upgrades and risk further weakening the property’s competitive position. Distressed Sales Gain Ground Distressed multifamily sales accounted for 4.7% of multifamily deals in the second quarter, compared with 1.5% in the second quarter of 2025. The increase suggests that more owners and lenders are beginning to accept sales rather than wait indefinitely for financing conditions to improve. For investors, the opportunity may lie in identifying assets where the debt is the primary problem rather than the real estate itself. Properties in markets with excess supply or underperforming rents will still require careful underwriting. But loans coming due from the 2021 vintage could produce more motivated sellers, more lender-driven transactions and a clearer path to discounts than the market has offered in recent years.