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Banks See More Office Loans at Risk of Default
Bank data from the first quarter of 2024 show the percentage of criticized loans — meaning those at greater risk of default or already in default — against office buildings had increased year over year, Trepp reported. However, the increase wasn’t uniform across the country.
In New York, for instance, the criticized office loan rate has increased to 44.5% from 33.5% a year ago, reflecting the city’s inventory of older, often obsolete buildings. Loans against San Francisco office properties also saw a spike in their criticized rate, to 47.7% from 33.5%.
Meanwhile, the criticized rate for office loans in the Washington, DC area spiked in 2022 to nearly 69%. That since has declined, to a still elevated 49.1%.
Although those major cities are the most obvious examples, other cities’ office markets are likewise facing distress. Trepp reported that the criticized rate for office loans against Atlanta properties jumped to 43.2% from 14% a year ago, driven partly by a glut of new construction and a shift in preference for suburban areas by office occupiers.
And the rate in Miami has jumped to 30.4% from 9.2% in Q1 2023. The market similarly has faced a supply/demand imbalance as a result of new construction.
- ◦Financing
