Office Landlord Debt Defaults on the Rise Due to Remote Work

Landlord debt Remote Work
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As more corporate tenants reconsider long-term leases due to the advent of remote work, an increasing number of office landlords are defaulting on loan payments, according to a survey released on Tuesday, as per New York Post.

According to information from research company Trepp Inc., the default rate for office loans jumped by a quarter of a percentage point to 1.83% last month, according to a report in the Wall Street Journal. Although the amount is still rather little, the growth was the most pronounced since December 2021.

According to data from real estate company Cushman Wakefield PLC cited in the report, vacant office space in the US is predicted to rise to an unprecedented 1.1 billion square feet by the end of this decade, up from 688 million square feet in 2019 before the COVID-19 pandemic started to drive a rapid adoption of remote work.

Major companies have been influenced by the move away from traditional offices. Recent disclosures by Brookfield Asset Management include a more than $70 million debt default on two Los Angeles office skyscrapers.

According to reports, the real estate company RXR is negotiating with creditors to restructure the debt on its office building at 61 Broadway in Manhattan. One of the largest landlords in the Big City, Blackstone Group, returned the keys to 1740 Broadway to its lenders last year while assigning a $308 million debt on the office property to a special servicer.

In the next months, the issue can deteriorate more. Low occupancy is a major factor in the monthly addition of five to ten more office buildings to the list of assets at danger of defaulting on financial obligations, according to Trepp Senior Managing Director Manus Clancy.

In order to encourage employees to work in their offices again, several American businesses have implemented hybrid schedules, with workers being required to come in two to four days a week. Some businesses, like Airbnb, have completely gone remote, but Goldman Sachs has forced employees to come into the office five days a week.

According to a report last week that the loss of worker spending due to remote work was predicted to cost Manhattan $12.4 billion annually.

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