Office delinquency statistics suggest that the worst of the crisis may be behind the market. Yet in conversation with lenders, special servicers and equity sponsors, a different story keeps surfacing: the visible data do not fully capture the strain still embedded in large portions of the office sector. The gap between the reported numbers and what market participants are underwriting on the ground is widening.
Headline Numbers vs. On‑the‑Ground Risk
The latest Trepp CMBS figures offer a reassuring narrative at first glance. The overall CMBS delinquency rate ended December at 7.3%, rising just four basis points for the month and office has hovered around roughly 11% despite repeated predictions of a sharper spike. On the surface, the market appears to be absorbing stress more smoothly than even some industry insiders expected.
That framing came through in the latest episode of The TreppWire Podcast, where Lonnie Hendry, chief product officer at Trepp, walked through predictions for 2026. He described a year of “measured momentum,” with capital becoming more selective but still available for “financeable” assets and noted that office delinquencies have not yet reached the extremes many anticipated.
How the Math Masks Office Stress
Beneath those headline numbers, however, the mechanics of how distress is being handled suggest that office risk may be understated. Hendry pointed to what he sees in the market: the bifurcation of “haves and have‑nots,” where well‑located, well‑leased buildings with strong sponsorship draw intense lender competition while weaker assets face mounting friction.
In practice, that friction is often resolved through quiet negotiations rather than an immediate default, keeping loans out of the delinquency numerator even as fundamentals deteriorate. The way Trepp calculates delinquencies helps explain why the official rate can remain range‑bound while underlying stress builds. The delinquency figure is a ratio with delinquent balances in the numerator and loans in the CMBS universe in the denominator, which grows as issuance has picked up. New deals take six months before they even appear in the delinquency universe, which means fresh origination can exert downward pressure on the rate at the same time that maturity‑driven defaults are rising.
Extensions, Modifications, and the 'Blurred Gray Area'
At the same time, a large share of problem office loans never shows up as newly delinquent because they are being managed through extensions and modifications. The podcast speakers described “blurred gray area” assets that have been hanging on via extensions or negotiated changes to the capital stack, rather than moving straight into special servicing or liquidation. Those transactions may involve sponsors writing checks, lenders re‑cutting structure or private credit stepping in with loan‑to‑own capital—all paths that reduce immediate delinquency at the cost of deferring resolution.
That dynamic is likely most pronounced in office, where owners and lenders have the most to lose from crystallizing mark‑to‑market values. Hendry acknowledged that his earlier forecast for office delinquencies—15% to 18%—never materialized, but added that “for whatever reason, whether it be creative workouts or extensions or modifications,” the reported office rate still feels too low relative to the level of distress he sees in the field. He suggested there is “more distress than what the numbers [are] reporting on the office side,” even as he moderated his prior bearishness.
Rollover Cliffs and Embedded Refinance Risk
The maturity profile of office loans is another source of hidden vulnerability. The podcast highlighted that the market is now entering the window when five‑year loans originated in 2021 and 2022, with peak optimism and aggressive rent‑growth assumptions, are starting to come due alongside traditional 10‑year balloons. Many of those five‑year structures were underwritten on the expectation of lower rates or stronger NOI by the time they rolled, and the speakers noted that a large portion of recent transactions are effectively “betting on lower rates in the quasi near future.”
If that bet does not pay off, rollover cliffs could quickly convert today’s performing office loans into tomorrow’s problem assets. The discussion raised the prospect of long‑term rates becoming “unanchored” amid concerns about deficits and Federal Reserve independence, which would make the popular five‑year strategy riskier and increase the chance that today’s refinanceable deals become tomorrow’s maturity defaults. Those risks do not show up in delinquency ratios today but sit embedded in portfolios that appear fine on a current‑pay basis.
Where the Numbers and Underwriting Diverge
Other strains are also harder to capture in simple delinquency metrics. Offices with thin coverage but supportive sponsors may continue to service debt while deferring capex or leasing costs, effectively pushing the problem into the future. The TreppWire conversation touched on how certain assets are “still fighting fundamentals” and carry “big capital stack problem[s],” particularly in less‑loved segments of the office market. Those properties can remain current for a time, but their long‑term viability depends on whether owners can fund tenant improvements, leasing commissions and reposition capital when leases roll.
Meanwhile, geography and asset quality are creating increasingly stark contrasts within the same asset class. The speakers cited examples of strong Class A offices backing large securitized loans, including SASB structures where appraised values still reflect low cap rates and high price‑per‑square‑foot valuations. At the other end, they pointed to offices in weaker locations or sectors where investors and lenders remain skeptical that “the math [will work] over the next decade,” even if those loans are not yet delinquent.
From a market‑structure perspective, the way capital is flowing also tends to depress reported office distress. The team noted that capital “has to get deployed,” with bond buyers, life companies and private lenders all under pressure to put money to work, leading to aggressive competition for high‑quality deals and a trickle‑down effect to mid‑market transactions. In that environment, some borderline office assets can still attract refinancing or modification capital, postponing hard decisions and keeping delinquency rates contained.
The upshot is a divergence between what the official numbers show and how office risk is being underwritten in investment committee rooms. The TreppWire speakers described 2026 as a year in which the line between “haves and have‑nots” becomes more pronounced, with more keys handed back and more aggressive distressed buyers moving in where business plans no longer pencil.
They also see a path toward higher transaction volume and more resolution, suggesting that some of the stress currently hidden in extensions and quiet workouts will eventually surface in sales and restructurings.
For now, though, delinquency statistics alone are a blunt instrument for gauging the condition of the office market. They capture loans that have already crossed into default, but not the shadow vacancy, unbudgeted capex, sponsor fatigue and rollover risk that are shaping underwriting decisions and pricing every day.
As 2026 unfolds, the real measure of office health is likely to be found less in the published ratios and more in the terms on which lenders are willing to extend credit—and the number of owners who decide that handing back the keys is the simplest way out.
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