Office CMBS Delinquency Rate Skyrockets to 12.3%, Outpacing Financial Crisis Peak
The surge in defaults in January was triggered by two prominent Manhattan office towers, with one facing foreclosure.
By Wolf Richter, published on Wolf Street.
The delinquency rate for office mortgages securitized into commercial mortgage-backed securities (CMBS) soared by over a percentage point in January, reaching a record 12.3%, surpassing the Financial Crisis peak by 1.6 percentage points, according to Trepp's data. These CMBS were sold to global institutional investors, including pension funds, bond funds, and insurers.
High vacancy rates in new office towers enable companies to upgrade and downsize simultaneously when leases expire, causing a "flight to quality" that undermines older buildings.
The surge in defaults was triggered by two massive Manhattan office towers.
One Worldwide Plaza, $1.2 billion in debt: This 49-story, 2.05 million-square-foot tower on 825 Eighth Avenue, built in 1989, houses 1.8 million square feet of office space, 30,000 square feet of retail, a five-stage off-Broadway theater, a 38,000-square-foot fitness center, and a 132,000-square-foot parking garage.
The debt comprises a $940 million senior CMBS loan and a $260 million mezzanine loan. In January, insufficient cash flow prevented the property from paying the 2026 tax bill and December note payment, resulting in a 30-day delinquency.
The landlord, an entity of RXR, SL Green, and New York REIT (which is liquidating), faced a UCC foreclosure auction triggered by Extell Development's acquisition of the $260 million mezzanine debt. The auction was halted when the landlord sued, calling it a "sham." A New York judge ruled in favor of Extell, allowing the auction to proceed, with Extell as the sole qualified bidder.
The vacancy rate soared to 37% in 2025 from 10% in 2024 after the departure of Cravath, Swaine & Moore's global headquarters and Nomura Holdings' downsizing.
The collateral was appraised at $1.7 billion in 2017 for refinancing and securitization. Last fall, Trepp reported a re-appraisal at $390 million, a 77% haircut from the 2017 value, significantly less than the $1.2 billion debt.
The CMBS loan was modified in March 2025 to tap into reserves for operating expenses and debt service, but Extend and Pretend didn't resolve issues.
The $940 million loan is divided across several CMBS deals:
* $705 million in four slices for WPT 2017-WWP
* $100 million as 11.01% of GSMS 2017-GS8 (part of CMBX 11)
* $50 million as 6.09% of BMARK 2018-B1
* $50 million as 4.69% of BMARK 2018-B2
* $35 million as 4.26% of GSMS 2018-GS9 (part of CMBX 12)
One New York Plaza, $835 million loan: This 50-story, 2.6 million-square-foot tower in the Financial District, completed in 1970 and renovated in 1994, defaulted in January when the December balloon payment was missed.
The loan backs the single-asset ONYP 2020-1NYP deal.
Despite no further extensions, Brookfield Properties seeks an additional extension, according to CoStar. The vacancy rate has risen to 35%, with Morgan Stanley as the largest tenant (44% of the space) and Fried Frank as the second largest (16%).
Several smaller loans were "cured" and removed from delinquency in January, including a $211 million loan backed by a Plainsboro, NJ, office property leased by Novo Nordisk US headquarters.
The Plainsboro location made headlines in October with the NJ labor department's WARN Act disclosures, revealing Novo Nordisk's plan to cut 811 jobs by 2025, more than tripling the 265 layoffs announced a month earlier.
The loan became delinquent for November and December payments due to borrower disputes over force-placed insurance (FPI), according to Trepp, with over $1.68 million outstanding. A settlement to resolve the insurance dispute is expected.
Who bears the responsibility for office mortgages? A significant portion is held by global investors through office CMBS, mezzanine loans, CLOs, and mortgages held by bond funds, insurers, office REITs, mortgage REITs, PE firms, private credit firms, and other investment vehicles.
Banks hold a portion of office CRE loans and have been disclosing write-downs and losses for three years, selling bad loans to investors at discounts to reduce their liabilities. This has impacted their earnings, including those of major foreign banks pursuing US office CRE in trophy cities.
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