The office real estate market has entered a challenging year, grappling with significant challenges represented by disruptive industry trends and upcoming financial maturities.
As highlighted by recent data from Trepp, an astounding $2.77 trillion of commercial real estate debt, accounting for half of all outstanding commercial real estate debt, is set to mature between 2023 and 2027. Of this, nearly $500 billion is due in 2024 alone.
This looming maturity cliff, coupled with declining property values and high-for-longer interest rates, presents a daunting challenge for both lenders and borrowers in refinancing this volume of debt.
Commercial Mortgage Maturities by Lender Type
| Year | Total Due ($ Billion) | Banks ($ Billion) | CMBS ($ Billion) | Life Cos ($ Billion) | GSE ($ Billion) | Other ($ Billion) |
|---|---|---|---|---|---|---|
| 2023 | $541.2 | $270.4 | $107.7 | $42.5 | $58.4 | $62.2 |
| 2024 | $544.3 | $277.2 | $81.7 | $46.7 | $68.9 | $69.7 |
| 2025 | $533.2 | $283.1 | $53.3 | $49.1 | $82.3 | $65.3 |
| 2026 | $561.4 | $298.3 | $40.7 | $52.3 | $102.3 | $67.9 |
| 2027 | $602.0 | $313.8 | $40.7 | $55.9 | $120.4 | $71.2 |
| 2028 | $565.9 | $293.3 | $35.7 | $57.1 | $113.3 | $66.5 |
| Total (2024-2028) | $2,806.7 | $1,465.8 | $252.1 | $261.1 | $487.2 | $340.5 |
Source: Trepp Inc., based on Federal Reserve Flow of Funds Data
Office Real Estate Industry Confronts Major Hurdles
Dr. Stephen Buschbom, the research director at Trepp, stated in a recent note that higher interest rates and tighter liquidity created significant challenges for new transactions and refinancing maturing loans. He compared the current situation in the commercial real estate (CRE) and CRE debt markets to past economic cycles.
“Maybe the office delinquency rate hits 7%, and I think if you’re talking about urban office, non-defeased, that still is a reality,” he wrote.
Buschbom noted an increase in loan modifications and creative capital structuring, expressing hope for a potential decrease in rates later in the year.
However, the expert also highlighted additional complications that may arise from banking regulations and geopolitical risks, potentially restricting liquidity further.
“The fact that you are seeing heavily discounted office transactions in San Francisco at least tells me that — if somebody is willing to start catching what we’re all calling a falling knife, whether or not you think they’re going to get cut, still speaks to where we’re at…
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