New research from Yardi Matrix reveals that several office markets may face potential distress, despite the lack of a predicted wave of office distress. The firm’s report states that debt service coverage ratios (DSCRs) have decreased for office properties in recent years due to rising interest rates and declining cash flow.
According to the report, only a few markets show widespread risk based on average DSCRs. In March, five out of 91 analyzed markets had DSCRs below 1.0: Brooklyn (0.81), Oklahoma City (0.89), Chicago (0.90), El Paso (0.92) and Cleveland(0 .96). Additionally, eight other markets such as Manhattan(1 .05), St.Louis(1 .16) and Nashville(1 .25) have ratios at or below the typical lender requirement of 1.
However, it should be noted that these market-level averages are estimates and individual property DSCRs can vary greatly within each market.The report emphasizes that while some properties in low-average-DSCR-markets continue to perform well,others in high-average-DSCRMarkets may experience financial difficulties.
The article “Declining DSCRs Mean Potential Distress in Many Office Markets” was originally published by Connect CRE.
