Office Loans Maturing in a Disrupted Property Market

Weakened demand for U.S. offices has caused this asset class to suffer the most severe price decline of any property type in a market that has been buffeted by higher borrowing costs. Investors looking to capitalize on the market’s dislocation may therefore pay special interest to the office loans that are coming due, the property owners looking to refinance and the lenders with the exposure.

As of June 30, 2024, U.S. office-property loans set to mature in the second half of 2024 totaled about USD 80 billion, according to MSCI Mortgage Debt Intelligence data. Additionally, about USD 100 billion of office loans were slated to come due in 2023 or in the first half of 2024 but, according to our analysis, were not subsequently refinanced and no sale of the associated collateral occurred. We have deemed these loans “likely extensions.”

The path to refinancing

Lenders for commercial-mortgage-backed securities (CMBS) have the largest exposure to office loans coming due in the second half of 2024, with nearly 30% of the balance. The long-term nature of this group’s lending means that in later periods the CMBS share of maturing office debt balloons to more than 50%. Many of these loans would have been originated before anyone had heard of COVID-19 and its impact on the use of office space.

For owners under financial duress and looking to refinance, Federal Reserve rate cuts should make obtaining a new loan more affordable. Still, implicit in the prospect of refinancing is the assumption that an asset will be profitable in the long term. For some office-property owners, the path to refinance may prove challenging and, in some cases, even impossible.