Published:
May 04, 2024
Author:
Sarah Parsons Wolter
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More than $38b of US office buildings are facing default, foreclosure or other forms of distress, the highest level since 2012 (post 2008 financial crisis), as the Wall Street Journal reports. In the next 12 months, $18b of office loans backed securities will mature and Moody’s expects 73% of these loans to be difficult to refinance.
A combination of sustained high interest rates and employee work from home post COVID has punished commercial real estate owners, who typically finance at least half of a building’s purchase. The US economy’s lack of progress on inflation, leading to expectations for continued high interest rates, hasn’t helped. Additionally, the US office vacancy rate is nearing a new record as businesses have continued to allow employees to work remotely post the pandemic.
Commercial real estate’s troubles have widespread implications for many players, including US banks and other lenders with exposure to the sector. Regional banks have been reporting high net charge-offs, including Republic First Bank who was recently seized by the FDIC and subsequently acquired by Fulton Financial.
Office tenants are getting good deals today as landlords look to sign leases, increase customer retention and help employers bring employees back to the office. According to researchers at NYU and Columbia, the value of New York office buildings could fall nearly $50b in the coming years. Time for landlords to break out that new sauna and cold plunge pool on the rooftop…
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Office-ially in Trouble
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Industry News
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