US Office Loan Delinquencies Hit 12 Percent
Commercial mortgage-backed securities for office properties have reached a 12 percent delinquency rate as lenders refuse to extend maturing loans.
The U.S. commercial real estate market is shifting from theoretical paper losses to realized financial losses as loan maturities arrive and lenders refuse further extensions. Office loans packaged into commercial mortgage-backed securities (CMBS) have reached a 12 percent delinquency rate, a level that surpasses the peaks seen following the 2008 financial crisis.
Trepp reports that approximately $64 billion in office CMBS loans are due this year and next, with nearly $40 billion already flagged as delinquent or troubled. While New York and San Francisco show some resilience, other cities face severe distress. Denver's office vacancy rate has reached 39 percent, and the Republic Plaza property, financed by Brookfield in 2012, has lost roughly 80 percent of its value.
Valuation collapses are widespread in major hubs. Chicago's Aon Center was recently appraised at $195 million, a steep drop from its $712 million purchase price in 2015. CoStar Group expects 11.5 million square feet of Chicago-area office space to be demolished by 2031. Research from Deutsche Bank Immobilien GmbH indicates that distressed office properties sold this year fetched prices roughly 20 percent below their latest appraisals, allowing some investors to acquire assets at fractions of their former costs to reset the cost basis for a post-pandemic economy.
