Larger banks, which are subject to stricter regulatory oversight, have been more proactive in setting aside reserves for potential losses, providing a contrast to smaller lenders.
Mike Comparato, president of Franklin BSP Realty Trust Inc., cautioned that office loans will remain a problem for both mortgage real estate investment trusts (REITs) and banks for the foreseeable future.
“Office assets are trading at levels that were simply unfathomable a few years ago,” he said, noting a reluctance among some lenders to take ownership of distressed properties to avoid marking them to market.
Rising refinancing challenges
Compounding the strain, this year’s Federal Reserve interest rate cuts have not translated into lower long-term borrowing costs, further complicating refinancing efforts. This makes it harder for landlords to refinance their loans at levels sustainable with current rental income, leading to a rising number of defaults and loan extensions.
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