At one point, leasing an office building to a single tenant rather than collecting from multiple smaller businesses seemed to be a sure thing.
But now some office landlords who’ve relied on one tenant are at risk of losing their properties as more companies shed space, the Wall Street Journal reported.
Just outside of Houston, oil company Schlumberger occupied over half of a 100,000 square-foot building, but chose not to renew its lease in February. A month later, the landlord defaulted on the mortgage and a foreclosure could be on the way, according to the special servicer.
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In Baltimore County, Maryland, John Hopkins University chose not to renew its lease and now the 56,000-square-foot building owner is facing a default on its mortgage, according to the Journal.
Office defaults are still rare since tenants often sign long-term leases. Only 2.2 percent of office buildings with securitized mortgages were delinquent in March, according to Trepp.
Tenant departures, however, can cause office valuations to plummet. An office building in Houston that lost two main tenants in 2016 and 2019 saw its valuations cut to $25 million, down from $121 million, according to Trepp.
[WSJ] — Keith Larsen