ANALYSIS: Office Loans Have Highest Delinquency Rate Since 2013

The percentage of US office sector commercial real estate (CRE) commercial mortgage backed securities loans tracked by Bloomberg that are 90 or more days delinquent rose to 2.42% on Oct. 26. The last time the delinquency rate was this high was in 2013, when the economy was still climbing out from the aftermath of the 2008 global financial crisis.

The Washington, Philadelphia, and Chicago metropolitan statistical areas are reporting particularly high levels of distress, each with 90-day plus delinquency rates between 9% and 10%.

Real estate market watchers have been contemplating a severe collapse in the office CRE market. Undoubtedly, office landlords are experiencing the effects of remote work and the ensuing reduction in overall demand.

Tenants are also experiencing financial distress, making it harder to pay off loans. For example, WeWork‘s bankruptcy prospects have generated concern among its landlords.

Bankruptcy and restructuring practitioners strategizing for their next engagements may want to explore distressed and watchlisted CRE loans; analyze underlying loan documents, especially for provisions that may make filing bankruptcy less than straightforward; and identify the major players with respect to these loans (although this can change quickly as loans are sold off) as well as who might be negatively affected further down the line.

Bloomberg Law subscribers can find related content on our Bankruptcy Practice Center and Chapter 11 resources.

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