Office Delinquencies Rise As Working From Home and Higher Rates Factor In

The delinquency rate for U.S. office loans rose in June as vacancies grew due to the post-pandemic work-from-home trend and persistently high interest rates, according to a report from Fitch Ratings.

The rate of delinquencies, or late payments, on loans behind commercial mortgage-backed securities (CMBS) rose to 2.45% in June from 2.42% in May, according to the report released on Friday. The volume of 30-day delinquencies increased to $1.92 billion from $1.86 billion over the same period.

The volume of 30-day delinquencies increased to $1.92 billion in June from $1.86 billion in May, increasing the 30-day delinquency rate to 0.35% in June from 0.34% in May. Office loans represented the largest share, accounting for 55% of 30-day delinquencies and totaling $1.05 billion, the report said.

Also Read: Time’s Up, Office Loans: It’s Payback Season

The volume of loans that are at least 60 days delinquent reached $1.35 billion in June, up from $1.32 billion in May. Office loans accounted for $51%, or $692 million, of these new delinquencies, while retail made up 16%, or $214 million, and hotel represented 12%, or $162 million, of the delinquencies.

Three of the largest five new delinquencies were office loans, which accounted for 37% of total delinquency volume and 72% of office delinquencies, the report said.

The Illinois Center, secured by two adjoining 32-story office towers totaling 2.09 million square feet in the East Loop submarket of Chicago’s central business district, became 60 days delinquent on a $244 million loan in June 2024.

The 1615 L Street loan of $134 million, secured by a 417,383-square-foot office building in downtown Washington D.C., was reported as a non-performing matured balloon loan in June 2024 that has been chronically delinquent after defaulting at its September 2023 maturity.

The Zappettini Portfolio loan, valued at $120 million and secured by a portfolio of 10 office buildings in Mountain View, California, defaulted at maturity in June 2024, according to the report.

Price Action: Major commercial real estate lenders showed mixed performances on Friday.

CBRE Group, Inc. CBRE gained 1.65% to close at $94.66, while Walker & Dunlop WD declined 0.47% to end the day at $99.68 and Cushman & Wakefield plc CWK jumped 1.61% to $11.99.

Three exchange-traded funds that hold the most CBRE stock made modest gains on Friday. Invesco S&P 500 Equal Weight Real Estate ETF RSPR gained 1.05%, while the Real Estate Select Sector SPDR Fund XLRE gained 0.73% and the iShares U.S. Real Estate ETF IYR edged up 0.84%.

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