Office Percentage in CMBS Conduit Bundles Down Since COVID-19 Pandemic

It wasn’t just the increasing work-from-home policies companies were adopting early in the pandemic that prompted investor reluctance for office CMBS deals, but rather the sharp rise in interest rates that started in early 2022, according to Christopher Pratt, a director with the JLL (JLL) capital markets team.

Pratt, who previously worked on CMBS deals at J.P. Morgan Chase, said elevated interest rates added to the headwinds facing the office sector at the time. 

“The interest rates rising and just a general sentiment toward office made it tough to really refi office in general,” Pratt said. “Then you had the banking crisis hit in March of 2023, and that’s when you really saw a nosedive.”

With the sharp dip in office concentration, multifamily’s share has increased the most in CMBS conduit pools in recent years, comprising 20.8 percent of deals in 2024, according to CRED iQ. Retail had the biggest exposure last year of 24.2 percent, with office coming in third at 15 percent followed by hospitality at 12.3 percent, the data shows.

Mike Haas, founder and CEO of CRED iQ, expects the office conduit percentage to continue hovering around the 10 to 15 percent range this year with the asset class seeing some upticks due to properties classified as mixed-use, life sciences, or research and development.

Josh Dill, a shareholder with law firm Polsinelli, said that prior to 2020 it was not uncommon to have CMBS pools consisting of 50 percent or more of office loans. Multifamily was not as much of a factor when much of the sector was financed more by agency debt and balance sheet loans from banks. 

“The largest asset class was always going to be office in a CMBS pool, and currently it’s much more limited,” said Dill, who represents CMBS lenders. “Multifamily was never absent, but it wasn’t a huge component in the traditional conduit just because a lot of them ended up in agencies. But, with the multi-
family boom in the Sun Belt, it has gotten to be a much bigger asset class in CMBS.” 

While office exposure has sunk in CMBS conduit deals, the sector has begun to play an increased role in the single-asset, single-borrower (SASB) market, with some trophy buildings drawing major investor interest.

In October 2024, Tishman Speyer landed a $3.5 billion CMBS refinance for its Rockefeller Center office complex, marking the largest-ever SASB office transaction. The deal, co-originated by Bank of America and Wells Fargo, was oversubscribed from its initial pricing levels to close with a fixed interest rate of 6.23 percent after starting off at 6.5 percent.

Tishman Speyer then reeled in another large CMBS financing with a $2.85 billion refi of the The Spiral office tower in Manhattan’s Hudson Yards in January. That was followed a month later by Irvine Company’s MetLife Building, also in Manhattan, securing a $1.5 billion refi.

Dill noted that a large chunk of CMBS office conduit deals derive from SASB transactions that get carved out as notes for future conduits. He said if there are more high-profile office buildings offered in SASB deals that produce notes they could boost the conduit office percentage, but he stressed that the number will likely stay roughly where it is for the remainder of 2025. 

An outlier in the recent trend of low office collateral pools in CMBS conduit deals was seen in mid-March in the $929.2 million 2025-BNK49 transaction. Office there comprised 38 percent of the pool. It marked the first time since June 2022 that office made up more than 35 percent of a CMBS conduit deal, according to Pratt. 

Pratt said the 2025-BNK49 differed from other conduits with office given that it had larger loans in the pool with diversification in tenants. These included the Discovery Business Center in Irvine, Calif., and Visa’s global headquarters in San Francisco, as well as a piece of 299 Park Avenue in Manhattan, which was previously securitized in a $500 million SASB deal priced in February. 

“It was a bit of a perfect storm to get to that level of office concentration,” Pratt said. “The B-piece buyers and investors in general are going to focus on deals that are low leverage and have a reset basis, whether it’s through a sale or a cash-in refinance once sponsors decide that enough’s enough and it’s time to refinance their deal.”

While the 2025-BNK49 deal did not price well mainly due to general macroeconomic uncertainty in the market, the percentage of office concentration could foretell encouraging signs for the sector, according to Pratt. Previously, 25 percent or thereabouts was the largest share office might claim in a conduit deal, he added — and then only through nontraditional office assets such as medical suites. 

With some positive tailwinds toward some Class A office properties, particularly in Manhattan, and some other encouraging metrics for the sector overall, Pratt expects more office securitizations to be at the forefront over the next year. He said JLL research shows only 3 percent of job listings now are fully remote compared with 30 percent in 2022. 

“Companies previously when they were going up for renewal were shedding 15 percent, and now they’re down to less than 3 percent, and utilization stats are clearly moving in the right direction,” Pratt said. “I think the same factors that concerned investors in 2023, now that they’ve improved substantially, could be the reasons why investors start to be able to absorb more and more office within CMBS. But I think the big thing is it’s still going to take a reset basis, and I think it’s going to be lower leverage at the start.”

While there may be an uptick for office in its CMBS conduit footprint, the collateralized loan obligation (CLO) market is not expected to see movement with the asset class. In fact, its presence is nearly nonexistent at the moment, according to CRED iQ’s Haas. 

With CLO deals over the past year totaling $8 billion, only 0.1 percent were from the office sector compared to 79.3 percent in multifamily, 9 percent for industrial and 8.2 percent with hospitality, CRED iQ data shows. The other property sectors outweighing office in the CLO space included retail (1.8 percent), self-storage (1 percent) and mixed-use (0.6 percent). 

Even though CLOs tend to attract investors seeking high-yield opportunities, Haas does not envision a scenario in which the investment vehicle plays a meaningful role in financing distressed Class B properties. 

“CRE CLOs with transitional multifamily properties allow for enough risk,” Haas said. “I think lenders are still scared of offices.”

Instead, it’s the top Class A offices, rather than older buildings, that may ultimately be what drives the sector back into play more in securitized products, according to Pratt. He noted that around 30 percent of all CMBS issuance has been in the office sector. And while a heavy portion of that debt has been concentrated in SASB deals backed by trophy buildings, the trend could signal more activity in the conduit space around the corner.

“There were a lot of office deals that they were trying to jam into conduits at the end of 2022 going into 2023 because the market couldn’t absorb SASB then,” Pratt said. “Now that people are comfortable with office on a stand-alone basis in SASB, in theory they should be even more comfortable diversifying their risk amongst other property types in a conduit transaction.”

Andrew Coen can be reached at acoen@commercialobserver.com.