An increasing number of commercial real estate owners are filing for extensions on their mortgages to avoid foreclosure, according to a recent report by The Real Deal. According to the report, about $1.5 trillion in commercial real estate mortgages are currently on the market, and many companies with large offices are facing the prospect of paying off mortgages they can no longer afford. To address this issue, they are taking harsh deals to extend their mortgages, in the hopes that the market will be more favorable down the line.
High Levels of Distressed Assets
According to Bloomberg, the amount of distressed commercial real estate rose by 10% in the first quarter of 2023. This brought the total of distressed commercial assets to $64 billion, with an additional $155 billion of commercial assets that may be considered troubled. This makes up a substantial portion of the estimated $1.5 trillion in commercial mortgages currently on the market.
Commercial Real Estate Owners Seek Extensions
To address these issues, many commercial real estate owners have filed for extensions on their mortgages to avoid the risk of foreclosure. In order to do this, many have had to advance large amounts of capital to pay off portions of the principal, earning them extensions on their debts of up to five years. Some fear that this is only a temporary measure that fails to address the real issues with the commercial real estate market.
Reasons For the Distressed Market
The reason that so many commercial real estate owners are struggling with their mortgages is due to the move away from working in office buildings. With many people now choosing to work from home, many offices remain empty, and companies are now left with expensive office buildings that serve little practical use. Demand for these offices is also low as a result, meaning they can be incredibly difficult to sell off, and office owners are left trying to pay off the mortgages on these buildings.
Potential Rewards, Mitigating Risk
By taking out extensions on their mortgages, many commercial real estate owners are hoping to delay payments to a point where the market will have recovered. Others, however, see this as just kicking the can down the road, as there is little sign that demand for office buildings will rise in the near future. Due to the fact that these extensions come with paying down the principal on the debt, however, there are relatively few fears of large-scale defaults for the moment.
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