Debt Decisions Loom for Office Owners

LOS ANGELES-Office building owners here and in other major US cities face difficult decisions this year on what to do about maturing debt. A number of industry analyses in recent weeks have cited the maturing debt coming due this year, and a number of office REITs have outlined their strategies for addressing the debt issue as the industry looks ahead to a year in which credit will still be tight and falling values will render refinancing problematic.

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.