Economy In Peril: US Office Buildings Owe $117 Billion In Loans

The U.S. economy is in peril, as it was recently revealed that office buildings across the country owe $117 billion in loans.

A bulk of the funds owed could soon default, spelling trouble for banks and developers who could potentially be bankrupt as a result, according to the Daily Mail.

Across the country, owners of office buildings received their loans when interest rates were substantially lower than they are today. As a result, they may not be able to refinance them.

The cities in America with the most loans to be refinanced in 2024 are primarily in states such as California, New York, Texas, Illinois, and Michigan.

In December 2023, economists found that 40% of office loans were gradually sinking or owing more than the property’s worth. Considering the economic crisis, smaller regional banks who loaned the funds to office spaces may be at risk if the loans default since they’re not big enough to handle the losses.

The Daily Mail reported, “Moody’s Analytics estimates 224 of the 605 loans that will expire soon will be tough to repay or refinance because their owners have too much debt or the buildings aren’t making them enough money.”

For office owners to avoid refinancing difficulties, analysts predict that their buildings would have to generate at least 9% of their debt in yearly income.

The Financial Times noted an instance where an office building failed to meet annual income expectations, making it unable to refinance.

In Manhattan, New York, the Seagram building was mortgaged at $760 million in 2012. The lender expected that the property would garner $74 million in annual income, but the best it did was $69 million in 2018 and just $27 million in 2022.

Market analysts hope the Federal Reserve will cut interest rates earlier than predicted. They believe cutting the rates would ease the damage caused by the $1.5 trillion real estate mortgages due in the next two years.

Interest rates were recently set at 5.5% to combat soaring inflation that has taken the country by storm since 2021.

Given the grave condition of the real estate market, big banks such as Wells Fargo have begun cutting their losses by offloading debts at a discount.