Dr. Gleb Tsipursky – The Office Whisperer
Nirit Cohen – WorkFutures
Angela Howard – Culture Expert
Drew Jones – Design & Innovation
Jonathan Price – CRE & Flex Expert
Commercial real-estate lenders can no longer delay bad loans and are now taking the hit. After years of extensions, lenders are accepting they won’t be repaid in full.
When interest rates surged in 2022, many banks chose to extend maturing loans issued during the low-rate era, hoping refinancing would eventually become affordable again, according to The Wall Street Journal.
That strategy is now ending. Lenders no longer expect borrowing costs to return to pandemic-era levels, and they are increasingly treating weak office performance as permanent rather than cyclical.
Defaults hit record levels
The pressure is showing up most clearly in office properties tied to commercial mortgage-backed securities. The office loan delinquency rate climbed to 12.34% in January, the highest since tracking began in 2000.
Roughly half of the nearly $100 billion in securitized commercial property loans coming due this year are unlikely to repay on time. A rising share is moving toward foreclosure or liquidation instead of refinancing.
About $25 billion in loans have already passed maturity without resolution, compared with almost none before the pandemic.
The workplace has changed permanently
Creditors increasingly believe office values have fallen because of structural changes to work, not just the economic cycle. Hybrid schedules and lower space needs are cutting rental income, leaving many buildings unable to support debt issued before remote work became widespread.
The refinancing math is especially harsh: loans made between 2019 and 2021 can now face interest rates more than three percentage points higher, wiping out margins for owners. Some borrowers are choosing to walk away rather than inject new capital.
Cities feel the impact
Distressed buildings often delay maintenance, upgrades and leasing, weakening nearby businesses and downtown recovery. Several U.S. city centers are dealing with partially empty “zombie” offices that drag on surrounding property values and local tax bases.
Banks enter the risk phase
The stress is concentrated in smaller and regional lenders that expanded aggressively into commercial real estate. The largest banks have so far avoided major damage, but analysts expect the sector to face its peak distress period as more loans mature.
As companies settle into long-term hybrid models, the amount of workspace businesses need is structurally shrinking — and trillions of dollars in property debt is being repriced around that reality.
