Waves of Maturing Office Loans Are Coming in Top Metros

For all the predictions of office pain if not outright oncoming disaster, some areas were supposed to be in better shape — primary metro markets with high concentrations of business and a lot of Class-A office space that would stay sturdy because of flights to quality.

But according to Yardi’s CommercialEdge, “office mortgage maturities signal coming distress,” with those loans “concentrated in primary markets, Class A properties and urban areas.”

The total amount of mortgages maturing by the end of 2024 are close to $150 billon, and nine metro areas will experience 20% of all office mortgages that come to maturity by then. This is out of 80,000 office properties with $920 in total mortgages. “Ten metros have more than $5 billion of office loans maturing through the end of 2024, and 10 have at least $10 billion of loans maturing by the end of 2026,” they wrote.

CommercialEdge said that at least $10 billion of loans were maturing through the end of 2026. That is a worry because of patterns that have developed in where work is done — in a traditional office, at home, or at flex and other facilities, coming together in the messy concept of hybrid work.

As the pandemic forced decentralization of work and old patterns did not fully reestablish themselves, the national office vacancy rate rose to 17.8% in September 2023 according to CommercialEdge. That was 1.2 percentage points up over the previous year. In January 2020, before the pandemic really closed in, the national rate was 13.4%.

Sublease space is up to 2.5% of national inventory. In such metros as Detroit, Houston, and San Francisco with high vacancy rates, rent growth has gone negative. The ten regions with the highest percentages of mortgages maturing are Houston (29.7%), Minneapolis (28.9%), Atlanta (28.8%), Connecticut (entire state, 27.3%), Philadelphia (26.7%), Chicago (26.4%), Denver (25.9%), Brooklyn (25.7%), Dallas (20.5%), and Nashville (19.8%).

“When looking at a longer time frame, through the end of 2026, we found nearly 14,000 properties – accounting for 32.7% of all office property mortgage volume – with $300.9 billion of loans coming due,” they wrote. “Ten metros have at least $10 billion of loans maturing, led by Manhattan, with $56.7 billion of loans maturing. Other metros with large maturity volumes include Los Angeles ($21.6 billion), Chicago ($17.9 billion), Washington D.C. ($16.2 billion) and Houston ($13.7 billion).”

And all this is without consideration of how WeWork’s bankruptcy could further complicate the outlook of the office market.