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U.S. office loan delinquencies rose sharply in September, primarily due to a USD 180 million loan default for 261 Fifth Avenue in Manhattan. Office CMBS made up over USD 1 billion of the USD 2.05 billion in newly delinquent CRE loans. Starbucks announced closure of its outlet at the Manhattan building as part of a larger national store closure plan. Another major default involved a USD 79 million loan for CityPlace I in Hartford. Overall CMBS delinquencies also rose, reflecting ongoing stress and shifting demand in the U.S. office real estate market.
Delinquencies on U.S. office loans rose significantly in September, driven primarily by the default of a major Manhattan office property, according to a report published earlier this week by ratings agency Fitch. The U.S. office delinquency rate increased by 42 basis points to 8.12%, up from 7.7% in August, reflecting growing stress in the office sector. Advertisement
Fitch analysts found that commercial mortgage-backed securities (CMBS) tied to office properties that became at least 60 days delinquent accounted for just over USD 1 billion of the USD 2.05 billion in newly delinquent commercial real estate (CRE) loans. The spike was mainly linked to a USD 180 million loan for 261 Fifth Avenue, a historic Manhattan office building constructed in 1928, which defaulted at maturity last month.
One of the building's prominent tenants, Starbucks, confirmed that it would close its store at this location along with over 450 other stores nationwide. The second-largest office loan default involved a USD 79 million loan for CityPlace I, the tallest building in Hartford, Connecticut, highlighting that pressures are not limited to major metropolitan markets.
These office loan delinquencies came alongside a broader increase in U.S. CMBS delinquencies of at least 60 days, which rose by 10 basis points to 3.1%. Analysts pointed out that the office sector continues to face challenges as demand for commercial office space shifts, with companies reconsidering their office footprints and flexible work arrangements impacting occupancy and lease renewals.
The recent defaults also underline how concentrated risk in large urban office properties can influence the broader market. While Manhattan remains a focal point, delinquencies in smaller cities like Hartford show that the effects are widespread, potentially influencing lending practices, loan restructuring, and investor confidence in office real estate.
Source Reuters
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