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Business News/ Economy / Office Landlords Can’t Get a Loan Anymore
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Office Landlords Can’t Get a Loan Anymore


The credit crunch is intensifying for office-building owners, who are scrambling to pay off lenders, throw in more cash or face default.

Only one out of every three securitized office mortgages that expired during the first nine months of 2023 was paid off by the end of September, according to Moody’s Analytics.Premium
Only one out of every three securitized office mortgages that expired during the first nine months of 2023 was paid off by the end of September, according to Moody’s Analytics.

The office sector’s credit crunch is intensifying. By one measure, it’s now worse than during the 2008-09 global financial crisis.

Only one out of every three securitized office mortgages that expired during the first nine months of 2023 was paid off by the end of September, according to Moody’s Analytics.

That is the smallest share for the first nine months of any year since at least 2008 and well below the nadir reached in 2009, when 47% of these loans got paid off. That share is also well below the rate before the pandemic, when more than eight out of every 10 maturing securitized office mortgages were paid back in some years.

While the numbers cover only office mortgages packaged into bonds—so-called commercial mortgage-backed securities—they reflect a broader freeze in the lending market for office buildings.

Many office owners can’t pay back their old loans because they can’t get new mortgages. Remote work and rising vacancies have hit building profits, making it harder to pay interest. Higher interest rates have pushed debt costs up and building values down.

That combination is fueling a rise in defaults. The share of office CMBS loans that are delinquent has tripled over the past year to 5.75%, according to Trepp. It doesn’t help that many banks no longer issue new office loans and that many insurance companies and debt funds have become more cautious.

“People just don’t want to touch it," said Alex Killick, managing director at CWCapital, a company that handles troubled CMBS loans.

The office sector relies on a steady stream of debt. Landlords typically buy buildings with big mortgages, and when they mature they pay them off by taking out new loans or by selling. That worked well when buildings were full and loans cheap and plentiful: In the first nine months of 2019, for example, 88% of CMBS office loans were paid off when they matured, according to Moody’s Analytics.

As interest rates and vacancies rose, that share dropped to 71% in the first nine months of 2022 and to just 31.2% this year.

Many banks are trying to reduce their exposure to the struggling office sector, and the easiest way to do that is to not issue any new loans. Insurance companies also lend less, and borrowing from bond markets means accepting much smaller loans at much higher rates, leaving landlords with too little money to pay off their old loans, said Michael Gigliotti, co-head of the New York office at brokerage JLL Capital Markets.

“It’s very hard to get done," he said. Selling buildings to pay back mortgages is also tough because prices are down and buyers can’t get loans, either.

Not all troubled mortgages are headed for foreclosure. About half the CMBS office loans that didn’t get paid off in the first nine months of this year ended up in default, but the other half got extended or otherwise modified, according to Moody’s. Often, lenders don’t want to take over struggling buildings and are willing to extend loans for a while at higher interest rates as long as landlords throw in cash to pay them down.

“So far, the borrowers have been willing to put in money," said Kevin Fagan, head of commercial real-estate economic analysis at Moody’s Analytics.

Killick said CWCapital recently extended a Denver office loan after the landlord agreed to set aside more cash to pay for building out floors and other lease-related expenses. But in many other cases, the lender and borrower don’t reach a deal.

In 2018, Kushner Cos. and RFR Realty borrowed $480 million against four Brooklyn office buildings, including $180 million in CMBS debt. The most senior part of the mortgage had an interest rate of just 4%, according to the bond prospectus, and the buildings were 94% occupied.

By 2023, occupancy had slipped to around 78%, partly because co-working company WeWork moved out, according to data from Trepp. When the balloon mortgage came due in September, the owners didn’t pay it off and defaulted.

“The borrower engaged various lenders to secure financing but was unable to obtain any loan commitments," the company handling the loan on behalf of bondholders wrote in a commentary. When the loan was issued in 2018, the buildings were valued at $640 million, according to Trepp. An appraiser recently cut the value to just $207 million.

Write to Konrad Putzier at

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