New research from Yardi Matrix has revealed that several office markets may be at risk for potential distress, despite the lack of a predicted wave of distress in the industry. The firm’s report states that debt service coverage ratios (DSCRs) have decreased due to rising interest rates and declining cash flow, as companies downsized or eliminated physical office spaces.
Although DSCRs have declined overall, only a few markets show widespread risk. In March, five out of 91 analyzed markets had average DSCRs below 1.0: Brooklyn (0.81), Oklahoma City (0.89), Chicago (0.90), El Paso (0.92) and Cleveland(96). Another eight markets are at or below the required ratio of 1:25 set by most lenders.
However, it should be noted that these market-level averages are estimates and individual properties within these areas may perform differently than their respective market’s average DSCR suggests – some properties in low-average-DSCR-markets continue to thrive while others in high-average-DSCRM-markets face potential distress.
The article “Declining DSCRS Mean Potential Distress in Many Office Markets” was originally published on Connect CRE.
