Office CMBS Delinquencies Spike to Record High: What It Means for Commercial Real Estate Lending
- Faundare Financial Research Institute
- Sep 7
- 3 min read
Updated: Sep 19
The commercial real estate (CRE) market is experiencing another defining moment. In August 2025, the delinquency rate for office loans securitized into commercial mortgage-backed securities (CMBS) surged to 11.7%. This isn’t just a troubling figure—it’s the highest rate ever recorded, surpassing even the 10.7% peak during the Financial Crisis.
According to Trepp, the industry is now grappling with a wave of defaults and distressed workouts across both office and multifamily sectors, reshaping how borrowers, investors, and lenders in commercial real estate must think about risk.
The Rapid Escalation of Office Stress
At the end of 2022, the delinquency rate for office CMBS loans was only 1.6%. In less than three years, that number has exploded more than tenfold.
Why?
Flight to quality: Companies are abandoning older office towers in favor of newer, higher-amenity buildings, often upgrading while downsizing.
Balloon maturities: Many loans originated in the mid-2010s or refinanced in 2020–21 are hitting maturity with no viable refinancing option at today’s higher interest rates.
Stagnant demand: Remote and hybrid work models continue to pressure office occupancy.
Example: The $1.04 billion loan on 1211 Avenue of the Americas in Midtown Manhattan became delinquent this summer when the balloon wasn’t paid. Instead of foreclosure, the servicer negotiated a three-year extension to 2028—classic “extend and pretend.”
Multifamily Joins the Trouble List
While office remains the worst-hit asset class, multifamily CMBS delinquencies also spiked to 6.9% in August, the highest since 2015. Two years ago, the multifamily rate was just 1.8%. Rising interest rates, record insurance and tax hikes, and an unprecedented wave of new deliveries are eroding margins for borrowers who financed deals with cheap debt in 2020–2022.
Example: The 850-unit Park West Village in Manhattan fell 30 days delinquent in August on a $62 million loan originated just three years ago.
Who Holds the Risk in Commercial Real Estate Lending?
One key difference from 2008: banks are less exposed.
Office loans: Risks are widely dispersed among bond funds, insurers, REITs, and private credit firms through CMBS and CLOs. Many banks have already sold their exposure at steep discounts.
Multifamily loans: Out of $2.2 trillion outstanding, nearly half is securitized by Fannie Mae and Freddie Mac. Banks hold about 29%, insurers 12%, and private-label securities just 3%.
That means the fallout is hitting investors and government-backed entities more than the banking system—limiting systemic risk, but raising the stakes for institutional portfolios.
The Reset Underway
The CRE market isn’t collapsing all at once—it’s resetting.
Office assets are trading at 20–70% discounts versus pre-pandemic values.
Sponsors who bought or refinanced during the ZIRP years can’t roll over debt at today’s 6–8% rates without massive equity injections.
Multifamily operators are squeezed between rising costs and stagnant rents, leading to defaults even on properties with strong fundamentals.
As Wolf Street bluntly put it: “Someone has to take the loss.”
What This Means for Commercial Real Estate Lending
For lenders, this disruption isn’t just a warning—it’s an opportunity. Traditional banks are pulling back, leaving a gap that private lenders and hard money lending firms can fill with speed, structure, and flexibility.
Key Openings for Faundare Capital
Bridge & rescue loans: Short-term financing to cover balloon payments, with reserves and milestone-based covenants.
Preferred equity & mezzanine capital: Helping borrowers meet servicer paydowns or fund critical capex.
Bridge-to-agency multifamily: Financing stabilized properties until they qualify for Fannie/Freddie takeouts.
Repositioning capital: Funding value-creating renovations and adaptive reuse of obsolete office and retail.
Guardrails for Safe Lending
Underwrite to current values and stressed NOI, not past pro formas.
Require two clear exits (sale and permanent financing).
Insist on sponsor liquidity and experience in workouts.
Maintain collateral control through assignments of rents, sweeps, and springing recourse.
Conclusion
The spike in delinquencies highlights the fragility of today’s commercial real estate market. But for disciplined lenders, it also signals the best opportunity in over a decade to fund rescue capital, bridge-to-permanent solutions, and adaptive reuse projects.
At Faundare Capital, we see this as a moment to step in where traditional financing falls short—offering commercial real estate loans and hard money lending options that help borrowers reset while delivering strong risk-adjusted returns.
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