Like CRE’s Rodney Dangerfield, office gets no respect, none at all. A CRED iQ report in March said that loan distress fell across most property types — except office. In April, the asset class was still the most distressed type of loan. And then tariffs and trade wars became the latest problem for office properties. Sometimes, even when they’re performing well.
Forget no respect, office gets kicked even when it’s up. Last November, Nathan Berman’s Metro Loft Management got into trouble when 180 Water Street, a 460,000 square-foot office-to-residential conversion in Manhattan, faced a mortgage that came due with $100 million in mezzanine debt, reported Crain’s New York Business at the time. Rents were $4,800 a month, and the occupancy rate was 98%.
Hard to believe? Not when you know about other properties that faced similar trouble. The Cunard Building at 25 Broadway went into special servicing in April 2024 after a $250 million default. However, through 2022 and 2023, the building had 92% occupancy, according to Commercial Observer. And Metro Loft’s 20 Broad Street landed in special servicing last summer, even with a 98% occupancy.
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“This is not a normal market occurrence,” David Wegman, a director in the commercial real estate division for Trepp, told Commercial Observer. “If a property is performing in terms of occupancy and rent collection, then normally this is not an issue.”
These aren’t normal times, though, for a few reasons. One is timing. Buildings purchased through 2021 and early 2022 probably benefited from low floating-rate interest loans and high leverage. Now the shorter-term money is coming due, rates are much higher, and longer rates are subject to the whims of the 10-year yield, which has been well above 4% for most of the last month.
"I’d also note that besides higher interest rates and a more volatile 10-year, valuations have declined significantly and collectively, this leads to greater refinancing risk,” Nick Villa, associate director, economist at Moody’s Analytics, told GlobeSt.com. “Consequently, if owners don’t have the wherewithal, or willingness, to add fresh equity, they may be looking at a distressed sale or choose to hand the keys back to the lender.”
Villa also pointed to an analysis that Christopher Rosin, Devin Fagan, Matt Reidy, and Twinkle Roy at Moody’s had published. “CMBS special servicing rates for conduit loans increased by nearly 10 percentage points over the past year, and were 17.5% as of January 2025,” Villa said.
Even with strong occupancy rates and rents, the financing baggage in the past and present can create conditions under which a project that once seemed viable may no long in fact be.
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