• Overall CMBS delinquency rates have trended down in 2022.
• Office CMBS delinquency, however, has held mostly flat since February 2022.
• Billions of dollars in maturing loans are coming due in the next 18 months.
• These maturities are concentrated in the New York metro area.
• Loans with low interest rates and loan extensions are likely to exercise those options in today’s rising-interest-rate environment.

Rising interest rates could pinch some office property owners with CMBS loans, stressing debt service coverage ratios (DSCR) as borrowers look to refinance their debt. An analysis by Trepp suggests that 6.1% of office loans maturing in the next 36 months could face a DSCR below 1.0 at a 6.5% coupon rate (interest-only loan). Borrowers with loan extensions are likely to take them because of steeper loan costs in today’s higher-interest-rate environment. Once those loans truly come due, they could be attractive investments for those bringing equity to a recapitalization or lenders providing bridge or mezzanine debt.

Narrowing this focus to the next 18 months (office loans with a maturity date through 2023), in the Atlanta, Boston, Chicago, Dallas, Los Angeles, New York, San Francisco, Seattle, and Washington, D.C., metro areas, $33.2 billion is coming due. Atlanta and Seattle have the smallest overall maturity exposure at $405 million and $513 million, respectively. On the other end is New York (mostly in Manhattan), with $15.6 billion in loan maturities, nearly half of the nine-market total. From 2017–19, Manhattan averaged $16.1 billion in annual office sales volume.

We have seen walls of maturities in the past and worked through them. Select investment opportunities will appear across the capital stack in the quarters ahead. Fundraising for value-add, opportunistic, and debt strategies has risen in recent years, per data from Preqin. Capital is ready to go, and investors are on the hunt for bargains.

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