An analysis by Blumberg Capital Partners of Coral Gables, FL points out that with office vacancies rising and office market stabilization not expected until 2011, "a number of owners will be forced to sell at prices below their debt levels" this year. "Maturing debt obligations will come under even more stress in 2009 with leasing rates poised to drop an additional 20% to levels not seen since 2002, and with office vacancies potentially rising to 25% by the end of the year," the Blumberg analysis says.

A number of office building owners have already been working on solutions to their upcoming debt maturities for some time. Los Angeles-based office REIT Maguire Properties Inc., for example, has extended the maturity on the mortgage at its 535,0000-square-foot Brea Campus office development in the Orange County city of Brea to May 2010. The company also has two one-year extensions remaining under the mortgage that allow it to extend the maturity to May 2012.

The Brea Campus mortgage of $109 million is one of a number of debts maturing in 2008 that Maguire has been working to negotiate extensions on, according to remarks by president and CEO Nelson Rising during the REIT's latest earnings conference call. Following the extension of the Brea Campus loan maturity to May 2010, the company now has debt maturities totaling $239 million in 2009, $594 million in 2010 and $55 million in 2011.

How office owners will fare in their efforts to refinance or reduce debt will depend in part on local market conditions. Some cities are holding up in terms of occupancy levels, including places like Houston, which has been relatively resilient due to the energy markets, Blumberg's analysis points out. However, it adds, "Most of the major hubs of commerce nationally are reporting alarming increases in available office space, which should lead to severely falling leasing rates in cities like New York, Chicago, Los Angeles and Phoenix."

Blumberg Capital Partners' new office market assessment follows its earlier prediction that commercial real estate prices in 2009 could drop some 20%--on top of an estimated 15% drop in 2008. Factors that are driving office pricing down include the lack of available acquisition financing, along with dramatically lower performance projections that are based on falling rents and climbing vacancies.

These downward trends will be magnified in 2009, according to Blumberg, which notes that the decline in available credit "has largely eliminated refinancing options for building owners," which in turn is driving additional properties onto the sale market. "Given the over-leverage in the commercial real estate market, and the ongoing decline in credit, a number of owners will be forced to sell at prices below their debt levels," the Blumberg report states.