Originally published on March 4, 2024, by Hannah Miet for UrbanLand Magazine.

For months, if not years, panic-inducing headlines have lamented the existential crisis facing the U.S. office market as a “wall of maturities” looms: $2.2 trillion of commercial real estate debt coming due between now and the end of 2027, according to Trepp estimates.

Despite the buzz, an actual shakeout in the office sector was delayed for a while as transactions slowed to a virtual halt. Valuations calculated in pre-pandemic highs grew too stale for buyers to trust them, and uncertainty around the worth of offices in the era of hybrid work abounded.

Now that valuations are trickling in, it’s clear that office values have decreased dramatically.

In 2023, special servicers–companies that manage commercial mortgage-backed securities (CMBS loans)–reappraised office properties that transferred to its oversight at prices 50-60 percent lower than their appraised value when the loans originated, according to Lonnie Hendry, chief product officer at Trepp, who added that properties transfer to special servicing when owners “haven’t made their mortgage payment, or they’ve broken some other significant covenant with the lender.”

Rather than sell at significant losses or refinance into interest rates that currently stand at 23-year highs, many office owners are clinging to backward-looking valuations calculated during cushier times by asking lenders for extensions—often granted only in the short-term—on loans that would otherwise mature.