Ready Capital Faces Mounting Delinquencies in Multifamily Loans

Ready Capital Faces Mounting Delinquencies in Multifamily Loans

Antonio Silva
2 min read

Financial Challenges Ahead for Ready Capital and the Multifamily Sector

On Thursday, Ready Capital disclosed that its $6.6 billion bridge loan book, widely used by multifamily syndicators, is experiencing a 10% delinquency rate, a significant 284% surge from last year. CEO Thomas Capasse attributed this surge to "credit impairment" caused by "late-cycle stress in the multifamily sector." The value-add multifamily buyers, who took loans at floating rates and failed to complete planned renovations, are now struggling to generate enough revenue to service their loans. This notably impacted Arbor Realty Trust, which modified nearly $2 billion in loans during Q1 to mitigate balance sheet damage. Ready Capital is contemplating a similar strategy but is encountering challenges due to the rigidity of the commercial real estate collateralized loan obligations (CRE CLOs) it deals in, resulting in a $732 million backlog of modifications and breached investor protection tests.

To address the mounting delinquencies, Ready Capital is exploring options such as replacing its special servicer and considering self-servicing. Additionally, the lender is contemplating the sale of $655 million worth of loans, 70% of which are delinquent, and has already taken a $146 million valuation allowance against these loans in Q1.

Key Takeaways

  • A noteworthy 284% increase in multifamily bridge loan delinquencies has been reported by Ready Capital compared to the same period last year.
  • The rise in delinquencies is linked to value-add multifamily buyers failing to complete planned renovations, leading to revenue shortages for loan repayments.
  • Arbor Realty Trust has actively modified nearly $2 billion in loans, while Ready Capital is hindered by inflexible CRE CLOs, resulting in a backlog of $732 million in loan modifications and breached investor protection tests.
  • Ready Capital is contemplating the sale of $655 million in loans, the majority of which are delinquent, and has accounted for a $146 million valuation allowance against these in Q1.


The surge in delinquencies at Ready Capital indicates late-cycle stress in the multifamily sector, hinting at potential troubles for the industry. This trend may have broader implications, affecting other lenders, especially those dealing with similar commercial real estate collateralized loan obligations (CRE CLOs). The fallout could encompass a credit shortage for value-add multifamily buyers, restricted access to floating-rate loans, and an upsurge in loan modifications. In the long run, this scenario could prompt a reevaluation of CRE CLO structures and lead to stricter underwriting standards. Stakeholders affected include Arbor Realty Trust, other multifamily lenders, and the special servicers tasked with managing troubled loans. Active real estate markets, such as the United States, could witness reduced growth in their housing sectors due to decreased lending. Furthermore, investors in CRE CLOs and other financial instruments linked to commercial real estate may experience repercussions through rating downgrades and diminished investor confidence.

Did You Know?

  • Bridge Loan Book: A collection of short-term loans utilized to bridge the gap until long-term financing is secured.
  • Commercial Real Estate Collateralized Loan Obligations (CRE CLOs): A type of structured finance product involving the securitization of commercial real estate loans, sold to investors as securities. STATIC CRE CLOs have limited flexibility in addressing problem loans.
  • Special Servicer: In the context of CRE CLOs, a third-party entity responsible for managing and modifying troubled loans within the pool. The requirement of a special servicer's approval for loan modifications can create barriers in addressing delinquencies promptly.

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