Real Estate

U.S. Office Loan Payoff Rate Rises in First Two Months of 2024

The payoff rate on maturing U.S. office loans packaged in commercial mortgage-backed securities (CMBS) spiked in January and February from last year, according to a new report by Moody's Investors Service, Reuters reported. More than 55% of maturing office loans was paid off in January, while 25% was paid off in February. The combined 48% payoff rate for the two months marks a significant increase from the overall 2023 rate of 35%. The first two months of the year saw $1.15 billion of office debt packaged in CMBS reach their maturity dates. There are $17.4 billion in office loans maturing in the next 12 months. Moody's deemed roughly $13 billion of the amount, or three-quarters, as very difficult to refinance. Concerns swirled last year over the heavy office loan maturity wall in 2024, as persistent inflation and remote working have strained landlords' ability to make loan payments. While the payoff rate increased from last year, the figures should be taken with a grain of salt, Moody's noted. Only 30 such loans have matured since the year's start, while smaller loans amounting to less than $10 million had a higher payoff rate than larger debt loads. Most other property types' payoff rates have continued to fare better than office loans. All industrial real estate loans due by the end of February paid off, followed by 89% of multifamily loans and 61.8% of retail loans. Hotel loans fared the worst, with only 19.5% of loans due at February's end paying off.
 
ABI will present a program April 30-May 2 that will address CRE exposure: the 2024 Distressed Real Estate Symposium, to be held in Ojai, Calif. Click here to register!
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Home Sales Collapse in Several States

Sales of new homes in the Northeast and Midwest plunged in February, helping to bring down the market overall across the country, as elevated mortgage rates dissuaded buyers from purchasing property, Newsweek reported. The Northeast registered a 31.5 percent nosedive in single-family home sales, while the Midwest saw a decline of 2.4 percent, contributing to a 0.3 percent of drop at the national level of 662,000, according to data from the U.S. Census Bureau and the Department of Housing and Urban Development. The South had more encouraging data, registering a 3.7 percent increase, while the West also saw positive numbers, up 2.3 percent for the month. Analysts blamed high mortgage rates for the disappointing numbers. Mortgage rates have been elevated, hitting a peak of 8 percent in the fall. Expectations that the Federal Reserve, which had raised borrowing costs to battle inflation, will cut rates had helped bring down the cost of home loans. But inflation has stayed higher than the central bank's target of 2 percent, leading investors to believe that borrowing costs could stay higher for longer. This dynamic has in turn contributed to a jump in mortgage rates in recent weeks.
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U.S. Office Occupancy Faces “Black Hole” of Remote Work, Says Green Street

Remote work has caused a “black hole” in U.S. office occupancy, knocking demand significantly below pre-pandemic levels and vacancy rates to historic lows, with a recovery to prior usage unlikely for years, said real estate analysis firm Green Street, Reuters reported. In addition to the decline in demand due to working from home, the office sector also faces headwinds from companies that are now more cost-conscious with their budgets, the firm said. The result has caused cumulative net absorption — the amount of leased space less what has been vacated — to have declined by 130 million square feet of U.S. office space since the 2020 COVID-19 pandemic, the firm said in a note called “The Black Hole of Office Occupancy.” “The last four years of disruption in the office market have been the worst on record,” said Newport Beach, Calif.-based Green Street. “The cumulative amount of office space vacated since [2019] surpasses the amount seen during the dot-com bubble and dwarfs that of the Global Financial Crisis.” Available office space was about 25% of existing supply at the end of 2023, both historic highs. For U.S. office occupancy to reach pre-pandemic levels it would take five years based on ambitious assumptions, such as an absorption rate of new supply on par with 2019 when the economic outlook and strong expected job growth made demand better. A realistic recovery scenario suggests about 1% office-using job growth and less than 1% supply growth over the next five years would result in U.S. occupancy rates not recovering to 2019 levels for a long while, the firm said.
 
ABI will present a program April 30-May 2 that will address CRE exposure: the 2024 Distressed Real Estate Symposium, to be held in Ojai, Calif. Click here to register!

 

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