Despite some notable companies mandating a return to the office, the office sector remains the main contributor to monthly increases in distressed metrics. According to experts on a panel titled “Distressed Property Outlook: The First Inning,” this cycle is just beginning.
During an in-person event called Connect Distressed Investment & Finance held at Luxe Sunset Boulevard Hotel in Los Angeles on October 22nd, Curt Spaugh, director of special servicing, responded to an audience question by saying that he doesn’t believe we have seen the full impact yet. He mentioned that their company has not liquidated much inventory yet but expects more distress for SASB and conduit CMBS loans as well as CBD office properties around 2025-2026.
The panelists agreed that there is enough current distressed activity to identify trends. Jenna Unell from Greystone’s special servicing portfolio noted that most defaults are happening primarily at maturity due to little liquidity for offices currently available. Mitchell Hunter from Trimont shared his company’s workload which includes about 12-15 properties currently going through foreclosure proceedings – all of which are office products.
The discussion also covered other major property types such as retail and lodging experiencing financial challenges along with multifamily owners and developers facing rental rate decreases and occupancy drops due new apartment deliveries causing overbuilding issues particularly in Sun Belt states.
Spaugh compared this situation with retail landlords who have overcome obsolescence risks by improving amenities like adding brewpubs or other attractive features for younger tenants – similar strategies can be applied by proactive office owners who want better results during these challenging times.
Unell added her perspective on hospitality assets stating they’ve had successful resolutions within last two years but also struggling ones resulting significant losses especially those located downtown areas (CBD hotels).
Other topics discussed during this afternoon-long event included Fannie Mae/Freddie Mac updates, opportunistic capital opportunities,and current investment sales market conditions.
Stay tuned for more coverage later this week.
