More Office Building Landlords Are Giving Properties Back to Lenders

A growing number of office owners who are struggling to pay off debt are handing over their buildings to their lenders.

More properties are being surrendered through so-called deeds in lieu of foreclosure, which are voluntary, unlike regular foreclosures that involve an involuntary seizure. And the option is being mentioned frequently in financial filings.

Office buildings made up 43% of all deed-in-lieus in the second quarter, the most recent full quarter of CoStar data available. That compares to a 20% average for all of 2022.

The increase comes against a backdrop of property owners being hindered in their ability to refinance maturing loans as rising interest rates have boosted borrowing costs. Lenders have also tightened their standards. Other owners simply are not willing to keep pouring money into properties they see as poor performers...