MorningStar: A focus on office leverage

The combination of uneven return-to-office patterns and an aging stock where the bifurcation between desirable and undesirable buildings is growing has people speculating that aging office properties may replace regional malls as the bane of commercial mortgage-backed securities investors' existence, according to a report by MorningStar. Property valuations are falling, and rising interest rates are putting further stress on properties that need to refinance in the near future. In addition, as buildings seek to add amenities to remain or become desirable to tenants, buildout costs as well as increasing tenant improvement allowances are becoming a bigger part of the equation.

While there seems to be some agreement that values will fall, there's still a lot of uncertainty about the two main inputs into valuations: net cash flows and cap rates.

MCIA is analyzing single-asset/single-borrower CMBS transactions that are backed by office properties. As properties in SASB deal