The great commercial real estate waiting game may finally be running out of time, according to Bloomberg.
For years after Covid fundamentally changed how Americans use office space, lenders and property owners managed to postpone much of the financial damage. Loans were modified, maturities were pushed out and buildings were given more time to recover. The basic assumption was that eventually interest rates would come down, employees would spend more time downtown and refinancing markets would reopen.
Instead, many owners are reaching the end of the runway with rates still elevated and buildings worth dramatically less than the debt sitting against them.
Chicago’s Aon Center offers an almost absurd illustration. The 83-story skyscraper changed hands for $712 million in 2015 and was subsequently refinanced, with $536 million of debt eventually packaged into commercial mortgage-backed securities. Today, after losing important tenants, the building is worth nowhere near that amount. Its latest appraisal came in at just $195 million — a decline of roughly 73% from its 2015 purchase price.
Bloomberg writes that when the debt matured in July, the owner couldn’t repay it and sought another three years to sort things out. This time the lender wasn’t interested. The request was “unequivocally denied.”
Paper losses mean nothing, that can be fabricated with the stoke of a pen.