Pimco-backed offices get downgrade from Moody's as losses continue

Moody’s Ratings downgraded bonds backed by offices owned by an affiliate of Pacific Investment Management Co. to its lowest ratings as the buildings continue to lose tenants and expectations mount for interest-payment shortfalls. 

The $484.7 million commercial mortgage-backed security is the most senior debt of $1.72 billion of mortgages on the portfolio of seven buildings in New York, San Francisco, New Jersey and Boston originated in 2022. 

The downgrade “reflects the expectation of further accumulation of interest shortfalls and the outstanding advances which increases the aggregate loan exposure and the potential for principal losses,” EunJee EJ Park, a Moody’s senior credit officer, wrote a note Friday. 

US offices continue to fall in price, led by declines in central business districts, where values are down 52% from their 2022 peaks, according to MSCI Inc. The delinquency rate on office CMBS climbed to 8.09% in July from 4.96% a year earlier, Trepp reported.  

Funds managed by Pimco acquired the office portfolio’s owner, Columbia Property Trust Inc., in 2021. The trust defaulted on the debt in January 2023 after interest rates rose and demand for office space continued to weaken following the pandemic. The buildings were 76% leased as of June 30, down from 85% when the debt was originated in 2022. 

Moody’s on Friday downgraded the CMBS F tranche to C, its lowest rating, and the E tranche to Caa3, the second-lowest rating.

The CMBS received a modification in April that extended the debt maturity to July 2025 and slashed interest payments to a fixed 0.19% annual rate from the original benchmark Secured Overnight Financing Rate plus 5.0778%. The SOFR was about 5.3% Friday.

A representative of Columbia Property Trust declined to comment.