The popularity of working from home in the U.S. is cutting into office tower revenue to the point that it is putting some commercial mortgage-backed securities at risk of default, according to a new report from the credit rating agency Moody’s. “Lenders’ anticipation of lower office revenue is creating refinancing difficulty for office loans with low debt yields and loans with significant lease maturities in the next 36 months,” the March 20 report said. In the past, commercial mortgage backed securities, which draw on the flows from a number of commercial mortgages, have proven beneficial to investors because they generate reliable cash flow at a fixed interest rate and come with prepayment penalties that discourage borrowers from making early payments — ensuring that the cash flow continues throughout the loan period. However, as companies shed office space, lease rates from commercial real estate are falling, reducing overall cash flow to office towers and potentially weakening the ability of borrowers to pay back their debt. According to Moody’s, office revenue has already fallen roughly 10 per cent below where it should be given the robust employment levels across the U.S. “Revenue will remain particularly stressed in markets with (1) a large concentration of industries, such as technology, that have adopted high levels of hybrid work and (2) difficult commutes,” the report said. Decreased office use has led to record office vacancy rates in some U.S. cities. And based on commercial real estate firm CBRE’s forecast, the increase in vacancies is expected to continue into 2024. CompStak, an American lease data provider cited in the report, indicates that the average office lease still has 5.1 years remaining on it. In other words, the higher market vacancy rates and lower rents will not be reflected in specific office cash flows for some time “Given this tenure, some maturing leases may still see tenants roll to higher rental rates, providing an increase to landlord revenues,” the report added. “Landlords also still receive cash flows on any sublet space available in their buildings. This gradual space rollover is why net operating income (NOI) from CMBS office properties has decreased only 3.7 per cent from its 2020 peak, which is a far narrower change than suggested by the large jump in market vacancies. However, market levels eventually translate into property cash flow.” Nevertheless, between Q4 2019 and Q4 2022, national vacancy rates increased by five per cent while rents decreased by 2.3 per cent. Of the 25 largest office markets, San Francisco recorded both the highest increase in vacancy rates at 13.5 per cent and the sharpest drop in asking and taking rents — down 13 per cent and 31 per cent, respectively. San Francisco’s rent taking rate has reportedly fallen back to 2014 levels while Charlotte, N.C. recorded the most significant growth in both asking and taking rents — up 9.5 per cent and six per cent, respectively. By contrast, Central New Jersey experienced the lowest vacancy increase — up by just 1.2 per cent. .

 https://financialpost.com .. lt-risk-moodys

We’ll see. There will need to significant continued defaults, but CMBS no doubt is looking potentially shaky.

idiotic bankers thinking "X source of payment was reliable and thus, always will be reliable", blowing themselves up, and then we're going to bail these idiots out again

Would literally vote for a president who vowed "no more bailouts" at this point

Thought all the companies are calling in they workers or letting them go if they still babbling about staying home to "work"

dudes always find a way to blame the public

Skrr said idiotic bankers thinking "X source of payment was reliable and thus, always will be reliable", blowing themselves up, and then we're going to bail these idiots out again Would literally vote for a president who vowed "no more bailouts" at this point

Faaaaaacccctttttssssss.

The whole point of this story is, “the grand wizards of this world don’t know how it’s expected to change and can’t profit from it.”

Then our mayors and governors will bullsh*t about how we all need to be commuting 5 days a week again.

Schavez98 said Faaaaaacccctttttssssss. The whole point of this story is, “the grand wizards of this world don’t know how it’s expected to change and can’t profit from it.” Then our mayors and governors will bullsh*t about how we all need to be commuting 5 days a week again.

Eric Adams already pushing that trash in NYC lol

Legit will consider resigning if my company switches the WFH policy up

You'll have to pay me at least $250k to get me in an office 5 days a week again

xbossxplayax said Thought all the companies are calling in they workers or letting them go if they still babbling about staying home to "work"

A lot of companies are switching to hybrid schedules instead of 100% remote working, but other than the big investment banks, hardly any companies are forcing their employees to be in the office 5 days a week, those days are long gone. I'd say the most common scenarios are now 2 or 3 days in the office.

The way commercial real estate is set up it's easy to walk away and default w/o it hurting your business like that. The banks don't expect loans to be paid off. They expect them to keep rolling them but if rolling doesn't benefit the biz, with the rates raising etc... It's going to happen.

Those lenders didn’t get any ppp money?

is what it is. They are trying to hold together a broken, outdated model of life because that's how they keep control of us.

Tony Franks said is what it is. They are trying to hold together a broken, outdated model of life because that's how they keep control of us.

This shyt predictable too .?see craziest amount of for lease signs gns ur name could be here signs inbwhat was prime real estate. Now small business companies got signs up n places that used to be fortune 100/500 leased spots .

It’s definitely going down.

xbossxplayax said Thought all the companies are calling in they workers or letting them go if they still babbling about staying home to "work"

I know quite a few people who still working from home or just go in one day out of the week

funny how the same politicians who didnt want to forgive student loans want govt intervention to help banks that made bad investments and incorrect forecasting