Office Buildings Face 40% Value Decline as Lenders Abandon Extensions

Delinquency rates on office-backed commercial mortgage securities have hovered near 12% for ten months, nearly five times their 2021 peak.

By the Family Office Real Estate Daily Desk·Monday, November 9, 2026·2 min read

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How much will office building values fall and when will lenders stop extending troubled loans?

Office buildings could lose as much as 40% of their value as higher interest rates force lenders to stop extending troubled loans, according to Lonnie Hendry, chief product officer at Trepp. Delinquency rates on office-backed commercial mortgage-backed securities have hovered near 12% for roughly ten months, nearly five times their 2021 peak of 2.5%. More than 20% of office properties with loans maturing in the second half of 2026 are already underwater, according to MSCI.

Key facts

Lonnie Hendry, chief product officer at commercial real estate intelligence firm Trepp, said office buildings could lose as much as 40% of their value as higher interest rates force lenders and property owners to recognize losses.
According to Trepp, delinquency rates on commercial mortgage-backed securities backed by office properties have hovered near 12% for roughly ten months, nearly five times their 2021 peak of 2.5%.
More than 20% of office properties with loans maturing in the second half of 2026 are already underwater, meaning their outstanding mortgages exceed their market values, according to MSCI.
About 45% of office loans originated since 2022 carry floating interest rates, according to Cushman & Wakefield, exposing borrowers to rising financing costs even before their loans mature.
Trepp estimates approximately $22 billion in office CMBS loans will reach final maturity in 2027, while MSCI expects more than $310 billion in commercial real estate loans across property types to mature during the second half of 2026.
Sales of troubled office properties increased 53% last year, with $5.2 billion in properties sold through bankruptcy, foreclosure or lender control, according to MSCI.

Office Buildings Face 40% Value Decline as Lenders Abandon Extensions — Image: editorial illustration · Story sourced from thewealthadvisor.com

Office buildings could lose as much as 40% of their value as higher interest rates force lenders and property owners to recognize losses they have spent years trying to avoid. The warning comes from Lonnie Hendry, chief product officer at commercial real estate intelligence firm Trepp, who says refinancing has become increasingly difficult for borrowers already struggling with vacancies and declining property values.

The pressure is particularly acute among Class B office buildings outside major metropolitan areas, where remote work has weakened demand and higher borrowing costs are undermining the economics of ownership. Delinquency rates on commercial mortgage-backed securities backed by office properties have hovered near 12% for roughly ten months, nearly five times their 2021 peak of 2.5%, according to Trepp.

The office market has survived repeated predictions of catastrophe since the pandemic, including warnings that a wave of maturing loans would trigger widespread defaults. Lenders often postponed the reckoning by extending loans and waiting for conditions to improve, but the latest increase in Treasury yields is making that strategy harder to sustain.

The benchmark 10-year Treasury yield has climbed 67 basis points this year and remains near 5%, raising financing costs across commercial real estate. More than 20% of office properties with loans maturing in the second half of 2026 are already underwater, according to MSCI, meaning their outstanding mortgages exceed their market values.

Hendry believes the most distressed buildings could suffer valuation declines approaching 40%, although the damage will vary considerably by location and property. Rob Koonin, co-head of law firm Polsinelli's New York real estate practice, sees a more moderate 10% decline as realistic for some Class B properties, with the full impact of higher rates potentially taking another year to emerge.

About 45% of office loans originated since 2022 carry floating interest rates, according to Cushman & Wakefield, exposing borrowers to rising financing costs even before their loans mature. Trepp estimates that approximately $22 billion in office CMBS loans will reach final maturity in 2027, while MSCI expects more than $310 billion in commercial real estate loans across property types to mature during the second half of 2026. Roughly half of that broader debt was originated in 2021, when interest rates were near historic lows.

Hendry says lenders are now becoming less willing to grant extensions without additional equity, particularly when the underlying economics show little prospect of improvement. Sales of troubled office properties increased 53% last year, according to MSCI, with $5.2 billion in properties sold through bankruptcy, foreclosure or lender control. Hendry expects transaction activity and occupancy eventually to improve once troubled properties are repriced sufficiently to attract new buyers.

The Deployment Angle

Family Office Real Estate Daily Desk · our analysis, not the source's

The shift away from extend-and-pretend creates two distinct paths for family office capital. The first is rescue equity alongside an existing owner who needs capital to refinance but cannot meet lender requirements alone. The second is outright acquisition of lender-controlled or foreclosed assets at prices that work with today's debt costs. The key difference is whether you are helping someone avoid a loss or benefiting from a loss already taken.

Run the arithmetic on any Class B office opportunity by starting with realistic occupancy, not pre-pandemic numbers. If a building is 70% occupied and comparable properties are achieving $30 per square foot in net operating income, debt service on a replacement loan at 5% will consume substantially more cash flow than the original loan originated at 2.5%. The equity required to close that gap can exceed 40% of the original purchase price, which explains why lenders are refusing to extend without fresh capital.

The MSCI figure of more than $310 billion in loans maturing in the second half of 2026 includes all property types, but roughly $22 billion of office CMBS alone matures in 2027. That concentration of distress in a single sector argues for sector-specific underwriting rather than broad opportunistic mandates. Occupancy trends, lease rollover schedules and tenant credit quality matter more than they did when cheap debt could mask weak fundamentals.

Avoid properties where the path to stabilization depends on falling interest rates or a return to 2019 office usage patterns. The repricing Hendry describes will create genuine value when buildings trade at prices that justify new investment under current conditions, not when sellers are still anchored to valuations that require conditions to improve. The opportunity is in assets that have already been written down, not in those where the loss is still being deferred.

Questions this story answers

01How much could office building values decline and what is driving it?

Lonnie Hendry, chief product officer at Trepp, said the most distressed office buildings could suffer valuation declines approaching 40%, driven by higher interest rates, rising vacancies, and lenders becoming less willing to extend troubled loans. Rob Koonin, co-head of Polsinelli's New York real estate practice, sees a more moderate 10% decline as realistic for some Class B properties.

02What is the current office CMBS delinquency rate and how does it compare historically?

According to Trepp, delinquency rates on commercial mortgage-backed securities backed by office properties have hovered near 12% for roughly ten months. That level is nearly five times the 2021 peak of 2.5%, reflecting sustained stress in the office sector since the pandemic.

03How much office debt is maturing soon and how exposed are those loans?

Trepp estimates approximately $22 billion in office CMBS loans will reach final maturity in 2027. MSCI expects more than $310 billion in commercial real estate loans across all property types to mature in the second half of 2026, with roughly half of that broader debt originated in 2021 when interest rates were near historic lows.

04Are lenders still extending and pretending on troubled office loans?

Lonnie Hendry of Trepp said lenders are now becoming less willing to grant extensions without additional equity, particularly when the underlying economics show little prospect of improvement. The 10-year Treasury yield has climbed 67 basis points this year and remains near 5%, making the extend-and-pretend strategy harder to sustain.

05Which office properties are most at risk from the current rate environment?

Trepp's Lonnie Hendry said the pressure is particularly acute among Class B office buildings outside major metropolitan areas, where remote work has weakened demand and higher borrowing costs are undermining the economics of ownership. About 45% of office loans originated since 2022 carry floating interest rates, according to Cushman & Wakefield, adding further exposure.

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