A recent analysis by CommercialEdge of nearly 80,000 office properties in the United States, with a combined debt of $920 billion, revealed that 16% of all outstanding loans are expected to mature by 2024, with a second, larger wave of maturities totaling 33% by 2026. The majority of these maturing loans are located in major markets, with Manhattan, Class A properties, and urban areas leading the way.
The timing of this surge in loan maturities is concerning, given the current confluence of factors that are squeezing office owners: weaker demand, rising costs, and declining property values. Simultaneously, banks and investors are seeking to reduce their exposure to the office sector.
Additionally, office building tenants now hold a stronger bargaining position, enabling them to negotiate favorable lease terms, including shorter lease durations. They can also require landlords to finance amenity renovations – further increasing costs and cutting into owners’ net income. This in turn has led to a rise in office delinquency rates, and the outlook for the upcoming years favors further growth in the number of underwater loans.
Naturally, since it holds the largest market share due to its vast total office space and premium pricing per square foot, Manhattan is most at risk. The analysis highlighted some 1,159 office spaces in Manhattan with approximately $20 billion of loans maturing by the end of 2024, nearly twice the amount of runner-up Los Angeles.
In fact, the California metro is looking at a total of $10.3 billion of loans maturing over the same period. Other metros with a substantial volume of maturing mortgages include Chicago ($10 billion), Washington, D.C. ($8.6 billion), Houston ($8 billion), and Boston ($8 billion).
A significant number of maturing loans is associated with higher-quality properties. Some $203 billion office loans maturing by 2026 are secured by assets rated “A+/A” by CommercialEdge, with loans backing lower rated properties (“B” or “C”) add up to roughly $98 billion.
Manhattan leads in A+/A property mortgages maturing, with a staggering $47 billion. Los Angeles sits in second place with approximately $16 billion, followed by Chicago with $13 billion, and Washington, D.C. with $12 billion.
In terms of Class B and Class C office spaces, Manhattan again holds the top spot with $10 billion in maturing loans. Houston follows with roughly $8 billion, Los Angeles with $6 billion. Chicago and Philadelphia have $5 billion each in debt that’s coming due in the near future.
Read the complete report on CommercialEdge for more details about the market areas that are most likely to be impacted by short-term loans coming due in the upcoming years.