Nothing is sacred during a pandemic and that includes office rents.
About a month into the coronavirus pandemic, landlords were still reporting strong rent collection from office tenants, even as residential collection waned and retail payments plummeted. But now mortgage lenders are beginning to see office tenants miss rent payments, the Wall Street Journal reported.
The change comes as surveys show that companies foresee office footprints shrinking because of widespread working from home.
One example is Madison Realty Capital’s 500,000-square-foot Brooklyn office, known as the Whale Building, which it handed back to mortgage lender TPG RE Finance Trust, according to the Journal.
The REIT reportedly said that the reason for the handover was that Madison was unwilling to pay off $81.4 million in debt and meet other obligations to a separate investor in the project.
A source familiar with the property told The Real Deal that JPMorgan Chase owns 90 percent of the equity, and is refusing to meet its funding obligations. A representative for JPMorgan did not immediately respond to a request for comment.
In May and April, more than 350 offices and apartment buildings across the U.S. began to struggle with mortgage payments. According to data provided by Trepp to the Journal, payments were missed on $7.1 billion in mortgages across both asset classes, up from $4.2 billion in March and February. (Trepp’s data only includes mortgage loans bundled into bonds.)
In April, public office landlords reported largely collecting most rent from tenants, though the potential for that to change loomed over the first-quarter results. That said, a third of Empire State Realty Trust’s tenants sought rent relief and the REIT said only 73 percent of office tenants paid, forcing the landlord to tap into security deposits.
Office brokers expect new leasing activity to drop off and operating costs for landlords to rise, given additional cleaning requirements.
[WSJ] — Erin Hudson, Rich Bockmann