Signs of Financial Distress Among Office Properties

The foreclosure risk facing a pair of high-profile office buildings highlight the debt difficulties facing the office sector as it deals with the fallout of the pandemic. The trend could be on the verge of picking up steam.

2 minute read

October 26, 2021, 5:00 AM PDT

By James Brasuell @CasualBrasuell

The exterior of the Civic Opera Building in Chicago, an art deco building built in the 1920s.

The Civic Opera Building opened in 1929. | Tupungato / Shutterstock

"Some office properties that've faced sharp occupancy drops since the Covid-19 pandemic are face warnings of possible foreclosure proceedings," reports Ashley Fahey.

Fahey is sharing the results of a Business Journals analysis of bond documents for office properties in the commercial mortgage-backed securities market, finding two high-profile towers (one in Chicago and one in Dallas) "marked as delinquent on debt payments that also are being pushed toward potential foreclosure proceedings by lenders and loan servicers."

The article provides details on the two buildings, the Civic Opera Building in Chicago (a paywalled article published by Crain's Chicago Business reports on a foreclosure lawsuit filed last week for that building) and the Harwood Center in Dallas. The former's occupancy rate fell from 92 percent before the pandemic to 71 percent as of March 2021. The latter's fell from 90 percent to 70 percent.

The aggregate of the data analyzed by the Business Journals finds signs of more general distress:

  • "Nationally, 91 office properties or portfolios are in special servicing, with 44% of them marked as delinquent."
  • Houston has the most office properties in special services, with seven.
  • "Although fewer than 100 office properties or portfolios are in special servicing, there are 782 office properties or portfolios across the U.S. on loan-servicer watchlists, which highlight concerns over a borrowers' abilities to stay current on a existing property debts."

More findings are included in the article below.

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