Office Space for Lease: Ratings Agency Looks on the Bright Side

In spite of naming several Houston loans backed by office buildings with vacant space to its watchlist, Morningstar Credit Ratings recently said that there is a bright side to the recent downturn: This isn't as bad as other economic downturns have been in the past, thanks to a diversified economy.

According to a recent article in the Houston Chronicle, the seven loans added to the Morningstar watchlist, totaling $263.5 million, are largely due to an energy industry that is under pressure because of volatile U.S. crude-oil prices. Loans are added to the watchlist for a number of factors, including the occupancy of the building, leases that are set to expire, and the debt that is being carried on the property.

However, recent reports indicate that the commercial real estate market is actually not as bad as many fear. The number of commercial real estate loans that are more than 30 days delinquent is the lowest it has been since the financial crisis. The amount of sublease space has seen a small decline.

A property owner for one of the loans that made the watchlist stated that he is not concerned. The $14.6 million loan matures in November of next year. While the building's main tenant -- an energy services firm -- moved out last year and other leases are nearing expiration, the owner stated that the building remains 70 percent occupied and there is backing by a strong financial partner.

Another property owner, with a $34.7 million loan that also made the watchlist, stated confidence in its leasing team and a number of solid prospects, as well as reserves to help see the company through this economic rough patch.

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