Commercial property lenders are intensifying pressure on building owners as refinancing strains deepen across the sector. With interest rates elevated since 2022, the delinquency rate for office building loans reached a record high last month, signalling mounting stress in urban real estate markets.
Refinancing has become increasingly difficult for landlords whose debt was originated when borrowing costs were significantly lower. As loans mature, many owners face higher interest expenses and reduced property valuations, particularly in office markets where demand has weakened. Initially, lenders opted to extend maturing loans in the expectation that rates would ease or that rental income would recover. This approach, widely referred to as “extend and pretend”, allowed borrowers additional time while avoiding immediate write-downs.
That strategy is now losing traction. Lenders are calling in tens of billions of dollars in troubled loans, indicating diminished tolerance for prolonged underperformance. Cities with struggling downtown cores, including Portland, Oregon, have become focal points of concern as office vacancies and lower cash flows weigh on asset values. The deterioration in fundamentals has complicated efforts by owners to secure new financing on viable terms.
The rise in delinquencies underscores the structural adjustment underway in commercial real estate. Office properties, in particular, remain exposed to shifts in workplace patterns and tenant demand, while higher financing costs have altered underwriting assumptions across the sector. As loan extensions give way to enforcement actions, both lenders and borrowers face a period of balance-sheet recalibration that could reshape ownership structures in affected markets.
