{"id":1004659509,"date":"2023-05-03T14:41:26","date_gmt":"2023-05-03T22:41:26","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004659509"},"modified":"2023-05-17T04:17:24","modified_gmt":"2023-05-17T12:17:24","slug":"how-office-stakeholders-are-coping-with-maturing-loans-looming-defaults","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/how-office-stakeholders-are-coping-with-maturing-loans-looming-defaults\/","title":{"rendered":"How Office Stakeholders Are Coping With Maturing Loans, Looming Defaults"},"content":{"rendered":"
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Image by mediaphotos\/iStockphotos.com<\/em><\/p><\/div>\n\n\n

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READ THE DIGEST<\/a><\/div>\n<\/div>\n\n\n

Remote work has outlived the social distancing, mask mandates and travel restrictions that the pandemic incited, and for many employers, getting employees back in the office has been an uphill climb. Vacant offices are inducing marked stress in the office lending environment, as landlords face maturing loans and few options to stave off delinquency.<\/p>\n

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READ ALSO: A Closer Look at Tech Layoffs\u2019 Impact on Office Leasing<\/a><\/p>\n

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Widening CMBS spreads, paired with the Federal Reserve\u2019s rapid interest rate hikes, are also furthering distress. Moody\u2019s Analytics<\/strong> reports that 2023 CMBS conduit office loan maturities total more than $6 billion. Aside from the $938 million in delinquency or special servicing, another $1.92 billion worth of loans are at risk of delinquency this year.<\/p>\n

Leading landlords under stress<\/h2>\n

By the end of the first quarter, some of the biggest office landlords were either delinquent or had already defaulted on their loans. Those owners included such heavyweights as Brookfield, Columbia Property Trust and RXR, which in early February returned two of its New York City office buildings to the lender.<\/p>\n

In February, Brookfield stopped loan payments on two Los Angeles towers in the firm\u2019s DTLA fund portfolio. The properties\u2019 combined debt totaled $754 million, according to a February filing. The firm defaulted on another office portfolio in April. \u201cBrookfield\u2019s distress underscores the issues we are seeing in most major CBD office markets in the country,\u201d said Jim Brooks, president of BH Properties<\/strong>, which is active in the acquisition of distressed properties.<\/p>\n

Also in February, Columbia Property Trust<\/strong> defaulted on $1.72 billion in loans backed by seven office buildings in New York City, New Jersey, Boston and San Francisco. From January to February, the office delinquency rate climbed 55 basis points, reaching 2.38 percent, and then rose again to 2.61 percent in March, according to a Trepp report.<\/p>\n

The recent collapse of two regional banks, followed by the bailout of a third and the takeover of global bank Credit Suisse, have ignited concern about the stability of the lending market<\/a>, and with commercial lending severely reduced in the past several months, liquidity could be further challenged.<\/p>\n

Occupancy yet to recover<\/h2>\n
\"Michael<\/a>

Michael Thom<\/p><\/div>\n

Owners that are feeling the pressure can\u2019t afford to wait it out. \u201cMost tenants are on a five- to 10-year lease, and leases from 2019 are getting ready to come up,\u201d observed Michael Thom, an attorney with Obermayer Rebmann Maxwell & Hippel. CEOs and city and state leaders are pushing employees to return to the office, particularly in downtown areas. \u201cDespite everybody\u2019s mandates, I have yet to see it really play out,\u201d said Brooks.<\/p>\n

Although office occupancy has improved compared to the depths of the pandemic, it is unlikely to return to pre-pandemic levels. One telling indicator is Kastle Systems\u2019 Back to Work Barometer, which analyzes access card swipes in office buildings in 10 large cities, including New York City, Chicago, Los Angeles and Dallas. In January, average occupancy exceeded 50 percent, the highest rate since before the pandemic. By April, however, occupancy had slipped to 46.3 percent. And as Cushman & Wakefield predicts in a February report, office density will decline from 190 square feet per worker to 165 square feet over the next eight years. These trends all point to a sobering long-term climate for office owners.<\/p>\n

A preliminary Moody\u2019s analysis pegs the first-quarter office vacancy rate at 19 percent, noting that the sector is approaching peak vacancy. And projections indicate this rate will only dip slightly in 2024, to 18.8 percent.<\/p>\n

So where does this leave owners? \u201cIt very much depends on the lender,\u201d noted Darin Mellott, senior director of capital markets research for CBRE<\/strong>, adding, \u201cMost are willing to take a flexible approach. Some are requiring more equity to be put back into the properties.\u201d Working with owners could also take the form of loan extensions or restructuring, both of which are expensive for borrowers.<\/p>\n\n\n