Rate Of Office Owners Behind On CMBS Mortgages Reaches All-Time High

The percentage of CMBS loans tied to office properties that have fallen behind on payments is at its highest level on record.

Roughly 11% of office buildings tied to CMBS loans were delinquent, beating the previous high watermark of 10.7% set during the Great Recession in December 2012, according to Trepp, which began tracking the CMBS sector in 2000.

More than $2B in office loans became freshly delinquent in December, causing a 63-basis-point increase in the overall delinquency rate, according to Trepp.

Office loan delinquency has nearly doubled over the past year, growing from 5.8% in December 2023. The sector has been the primary driving force behind the overall increase in distress in CMBS loans. Over the past year, the overall CMBS delinquency rate rose to 6.6% from 4.5% a year prior.

But the beleaguered office sector remains the standout as landlords face inflated interest rates and shrinking office footprints as hybrid work cements. The Federal Reserve in November noted that delinquency rates for commercial real estate loans increased to the highest level since 2014, with late loans for office properties jumping 11% in the second quarter of 2024 for large banks.

“Looking closer at the CRE sector, loans secured by offices, especially those in major cities, remain the top concern,” the Fed said in its November supervision and regulation report.

Multifamily borrowers also continue to fall behind on their loans as interest rates stay elevated, with the delinquency rate on apartment properties rising from 2.7% to 4.6%. More retail owners also are also having trouble staying current, with delinquencies rising from 6.5% at the end of 2023 to 7.4%.

Industrial delinquency rates fell from over half a percent to just 0.3% during the same period, according to Trepp.