By Robert Shibuya, Chairman & CEO • November 2, 2026
Executive summary
One in eight office loans in commercial mortgage-backed securities (CMBS) is now delinquent, and a large share of office debt comes due over the next three years. For tenants, the landlord’s balance sheet has become a real occupancy risk. An owner under financial pressure may fail to fund promised improvements, defer maintenance, cut services or lose the building to its lender partway through a lease.
The same pressure gives tenants leverage. Owners that need occupancy to refinance or hold onto a building will often give better economics, more flexible terms and stronger protections. This paper explains how to assess a landlord’s financial health, which lease provisions protect tenants and how to turn an owner’s weakness into a better deal.
The market backdrop
In August 2026, 12.0% of office loans in CMBS were delinquent, according to Trepp data reported by CRE Daily. That is well above the 7.85% delinquency rate across all property types.
The pressure keeps coming as loans mature. The Mortgage Bankers Association estimates that 17% of the $5.0 trillion in outstanding commercial mortgages, about $875 billion, matures in 2026, and that 17% of office loans come due this year.
Many loans that are still current are also fragile. Trepp identified $12.1 billion of performing office loans whose buildings do not generate enough income to cover their debt payments: the median debt service coverage ratio (DSCR) is 0.67x, meaning income covers only two-thirds of the payments. Of that balance, 88% reaches hard maturity by the end of 2029. The group includes well-known towers such as 280 Park Avenue in New York and 555 California Street in San Francisco.
Often lenders have extended these loans rather than foreclose, a practice nicknamed “extend and pretend.” A building can therefore look stable to tenants while its owner is struggling to make payments.
How landlord distress reaches tenants
A landlord’s debt problem becomes a tenant’s problem in five common ways:
- Unfunded improvement allowances. Lenders often hold leasing reserves or limit what the owner can spend. If cash is short, promised tenant improvement (TI) dollars arrive late or not at all.
- Deferred maintenance and capital work. HVAC, elevator, roof and building-system upgrades get postponed, and building quality declines.
- Thinner services and amenities. Cleaning, security, staffed lobbies and amenity floors are easy places for a struggling owner to cut costs.
- Change of control. Receivership, foreclosure or a deed-in-lieu brings in a lender or special servicer whose goal is to recover the loan, not to keep tenants happy. Approvals for subleases, alterations and renewals can stall.
- Lease vulnerability. Without proper non-disturbance protection, a foreclosing lender may not be bound by the lease, or by concessions the prior owner agreed to.
Assessing your landlord’s financial health
Assess the landlord’s finances with the same care as the rent before signing a new lease, renewing or committing capital to a build-out. Useful checks:
| Check | Where to find it | Warning sign |
| Loan balance, maturity and DSCR | CMBS servicer data (Trepp, Moody’s/CRED iQ), county mortgage records | Maturity within the lease term; DSCR below 1.0x |
| Watchlist or special servicing status | CMBS surveillance reports | Loan on watchlist or transferred to a special servicer |
| Ownership structure | Entity filings, broker intelligence | Single-asset entity with a fund near the end of its life |
| Building occupancy and rollover | Market data, broker tours | Falling occupancy; large leases expiring soon |
| Physical condition | Site inspection, engineering review | Visible deferred maintenance, aging systems |
| Payment history | Contractors, other tenants | Mechanic’s liens, unpaid vendors, late TI reimbursements |
Ask the landlord directly about loan maturity, lender approval rights for your lease and how the TI allowance will be funded. A well-capitalized owner will answer readily. If the owner hesitates, take that as a warning sign.
Lease protections to negotiate
When there is any doubt about the owner, build these protections into the lease:
- Subordination, non-disturbance and attornment agreement (SNDA). Get it signed by the current lender at lease execution, not “commercially reasonable efforts” later. It should bind any successor owner to the lease and to unpaid landlord obligations, including the TI allowance.
- TI escrow or letter of credit. Have the allowance funded into a third-party escrow or backed by a letter of credit, so the money exists before construction starts.
- Rent offset and self-help. If the landlord fails to pay the allowance or make required repairs, the tenant can do the work and deduct the cost, with interest, from rent.
- Free rent up front, not later. Front-load concessions rather than spreading them over the term, so less of the deal’s value depends on the owner staying solvent.
- Service-level and operating covenants. Define minimum building services, and tie remedies such as rent abatement to failures that last a set period.
- Flexibility rights. Termination, contraction or relocation options triggered by foreclosure, receivership or prolonged service failures.
Turning distress into leverage
An owner facing a refinance needs signed leases. Every year of occupancy it can show raises the building’s value and improves its chances with a lender. That gives creditworthy tenants negotiating power:
- Early renewals. An owner whose loan matures in 18 months may pay well to lock in a tenant now. Possible terms include lower rent, more free rent or a “blend-and-extend” that cuts current rent in exchange for a longer term.
- Lender-side negotiation. When a special servicer or receiver controls the building, it often values certainty over headline rent. Talk to the decision-maker directly.
- Note-sale and recapitalization windows. A building sold at a discount gives its new owner a lower cost basis and room to offer stronger concessions. Time decisions around these events where possible.
- Compare strong and weak buildings. A well-capitalized competing building puts pressure on a weaker owner and protects you if the deal falls through.
The aim is a deal that compensates the tenant for the owner’s credit risk and keeps the space viable for the full term.
Next steps
In this market, the landlord’s balance sheet is part of the occupancy decision. Tenants that investigate owner health early will avoid unpleasant surprises mid-lease and often secure better terms.
Steps for every upcoming transaction:
- Pull loan, maturity and servicing data on the building before issuing an RFP or renewal proposal
- Ask the landlord in writing how TI will be funded and whether the lender must approve the lease
- Require a lender-signed SNDA at execution
- Negotiate a TI escrow or letter of credit, plus rent offset rights
- Front-load concessions and add foreclosure-triggered flexibility
- Use maturity timing as leverage for early-renewal or blend-and-extend terms
