Hybrid work challenges office property loan performance, says analyst
Delinquencies for commercial property loans remained flat in the first quarter of 2024, but loans backed by office buildings saw continued increases, according to the Mortgage Bankers Association.
MBA’s Commercial Real Estate Finance (CREF) Loan Performance Survey found that 96.8% of outstanding commercial mortgage loan balances were current or less than 30 days late at the end of the first quarter, unchanged from the previous quarter.
However, 6.8% of the balance of office property loan balances were 30 days or more delinquent, up from 6.5% at the end of last quarter.
“Loans across property types are adjusting to higher interest rates and uncertainty about property values, but the continued fog around the impact of hybrid work adds another challenge for office properties and their loans,” Jamie Woodwell, MBA’s head of commercial real estate research, explained in the report.
Other property types also saw varying levels of delinquencies, with 6.3% of the balance of lodging loans delinquent (up from 6.1%), 4.7% of retail balances delinquent (down from 5.0%), 1.2% of multifamily balances delinquent (unchanged), and 1.2% of the balance of industrial property loans delinquent (up from 0.9%).
Woodwell noted the diverse nature of the commercial real estate market, stating: “With 20% of the $4.7 trillion of outstanding commercial mortgage debt maturing this year, each of those factors will play a part in determining which loans may face challenges and which may not.”
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Among capital sources, commercial mortgage-backed securities (CMBS) loan delinquency rates were the highest, with 5.2% of CMBS loan balances being 30 days or more delinquent, up from 5.1% last quarter. Non-current rates for other capital sources, such as FHA multifamily and health care loans, life company loans, and GSE loans, remained more moderate.
The findings of the MBA’s Commercial Real Estate Finance (CREF) Loan Performance Survey cover $2.7 trillion of loans as of March 2024, which represents about 57% of the total commercial and multifamily mortgage debt outstanding.
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