This article was presented by Close Invest.
The number of overdue claims on office loans is increasing again. In September 2025, Fitch Ratings reported that delinquencies on US offices had risen after a $180 million loan linked to 261 Fifth Avenue in Manhattan defaulted – the latest in a series of defaults. commercial real estate stress signals. Nationally, default rates on commercial mortgage-backed securities rose about 10 basis points to 3.1% in the first quarter of 2025, while the Mortgage Bankers Association recorded higher default rates on housing and industrial loans in the first quarter of the year.
Mortgages for offices who have been securitized in commercial mortgage-backed securities (CMBS) are the hardest hit, with a default rate of 11.8% reported in October– the highest since the 2008 financial crisis. Delinquencies on these types of loans hit direct investors (secondary financing is often not allowed), making them particularly risky.
It’s not just high interest rates
The causes of these defaults are known, including high financing costs, the demand for soft leasing and maturing debt with low interest rates. cannot be refinanced on the same conditions. For lenders and investors, this is the next phase of the “wave of delinquencies” that started in the office sector and is now spreading outward.
The first, most obvious path in the current wave of delinquent office loans is default on maturity. The financing landscape in 2025 is simply very different than five or ten years ago, when interest rates were at historic lows. It’s not at all surprising that owners and investors want out.
When interest rates rise, long-term real estate loans – often five to seven years – become a risk trap. They tie up capital in assets that may lose value or become vacant before maturity.
In fact, this has already happened – with quite drastic consequences – for prominent commercial properties that fell into debt before the loan due date. An example is the fate of CityPlace I in Hartford, Connecticut. The building had half by its value declined in 2023 following a decision by UnitedHealthcare does not want to renew the lease for the tower. The exit at the time was downplayed as ‘just bad timing’, but it’s obvious at this point that CityPlace I is indicative of a wider trend.
A similar fate recently befell Bravern Office Commons in Bellevue, Washingtonthat was at some point fully leased to Microsoft, but has been vacant since 2023, when the company announced it was leaving the building. The property lost 56% of its value since the most recent appraisal (in 2020), And has gone underwater bee 12% below the loan value.
The problem does not only arise from companies leaving their office spaces. There is a domino effectas Lower visitor numbers at commercial properties generally means fewer office spaces And fewer facilities then would typical employ employees in these buildings.
The familiar structure of downtown commercial centers is disintegrating. A stark example is Starbucks will announce this in September that it would close hundreds of locations across the country – one of them at the now delinquent 261 Fifth Avenue in New York.
The pattern of recent delinquencies is clear: office spaces that relied on long-term, single-occupancy leases (Microsoft, UnitedHealthcare, etc.) have suffered the most dramatic losses in value. Larger companies with large workforces have had to make the most drastic decisions in the wake of the pandemic.
Navigating the new landscape
It is still possible to successfully navigate the market; it just requires investors to adapt to a less predictable scenario occupancy pattern. What used to seem like a safe bet – a building with a long-term lease from a large, respectable company with a large, nationwide workforce of full-time office workers – is now anything but.
Direct commercial ownership is also now a much riskier proposition, given the very real possibility of defaulting and subsequently having problems with all conventional recovery options, e.g. a refinancing that is too expensive, a sale that has become impossible because the building is now worth less than the outstanding loan balance, etc.
The practice of “curing” commercial loans by negotiating an extension or being removed from the delinquency list by paying off the interest Are temporary solutions that yet to leave investors with the same problem – just a few years later.
Investors must think beyond traditional investment models and loan maturities to survive the tectonic shifts that are upending the commercial market. Short-term real estate debt limits exposure to these long-term risks. Six- or 12-month bonds can adjust more quickly to market conditions, allowing investors to remain liquid while earning returns from ongoing deal flow.
The short note solution
In this landscape of overdue payments, Connect Invest’s Short Notes stand out. Each Short Note pools investors’ capital into a diversified, collateralized portfolio of real estate loans throughout the acquisition, development and construction phases. Each note has a fixed annual rate of 7.5% to 9%; monthly interest payments; and defined terms of six, 12 or 24 months.
Because Connect Invest’s lenders persist loan-to-value ratios under 80% and to perform Through internal portfolio diversification reviews, investors gain exposure to real estate credits without taking the risk concentration from a single property error.
So while office loans may buckle under refinancing pressure, investors can still access the income potential of real estate debt – without tying up capital for years or taking on the risk of direct real estate ownership. The short notes from Connect Invest make it possible to stay invested in the real estate credit markets while avoiding the most volatile corners.
Discover today’s Short Notes and start earning real estate-backed income today connectinvest.com.
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