– Michael Cohen, Brighton Capital Advisors
About $52 billion, or 31%, of all office loans in commercial mortgage bonds were in trouble in March, according to KBRA Analytics.
That share is up from 16% a year ago, according to the firm. Some cities have bigger headaches than others, with Chicago and Denver offices having 75% and 65% in jeopardy, respectively.
The office sector is wrestling with twin challenges of low occupancy and rising interest rates that have pushed valuations sharply lower. Lenders are still absorbing losses and placing loans on watchlists, while borrowers have been extending loans in hopes that values will rebound.
This week offered some hope for borrowers holding out for lower interest rates. On Friday, relatively soft job gains data suggested the economy is cooling, causing traders to pull forward bets on the first Federal Reserve rate cut to September from November.
Even so, strain in the office sector could get worse before it gets better, said Michael Cohen, a managing partner at commercial real estate consulting firm Brighton Capital Advisors.
“I don’t think there can be rate cuts fast enough to save commercial office buildings and other assets that are poor performing or over leveraged, like multifamily, without a loan modification from the lender,” said Cohen in emailed comments.
According to KBRA Analytics, its 31% assessment includes single-asset single-borrower as well as conduit CMBS…
