US office owners grapple with massive $170b debt burden ahead.

January 2, 2024
1 min read

According to data from the Mortgage Bankers Association, there are $US117 billion ($171.6 billion) of commercial mortgages tied to US office buildings that either need to be repaid or refinanced in 2024. The majority of these loans were taken out a decade ago when interest rates were lower. Now that interest rates have nearly doubled and many buildings have decreased in value, owners may struggle to refinance these loans.

Commercial mortgages are almost entirely interest-only, meaning developers have low monthly payments but face a balloon payment equal to the original loan when the mortgage comes due. Delinquencies on office loans financed by commercial mortgage-backed securities (CMBS) topped 6% at the end of November, up from 1.7% a year earlier, indicating potential pain for investors.

In December, insolvency administrator for Austrian property owner Signa put the company’s ownership of half of New York’s Chrysler Building up for sale to raise urgently needed cash. Experts predict that owners of buildings that don’t generate at least 9% of their debt in annual income will have trouble refinancing in 2024. Although some of the financial troubles of office buildings and their owners are due to the COVID-19 pandemic, aggressive underwriting in earlier years has also been a factor.

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