REIT Divide: Office Loan Defaults Rise as Data Center Builds Boom

Two markets inside one asset class

In October 2026, U.S. real estate investment trusts are effectively two different businesses. Distress in office mortgages has reached its highest level of the decade. At the same time, data center construction is drawing capital from Wall Street's biggest alternative asset managers, from hyperscale tech tenants and from retail investors. Both trends come down to financing: who can refinance, who can borrow to build, and what lenders will accept as collateral.

The gap shows up in prices. Equinix had gained about 33% this year and Digital Realty about 16% as of late September. Equinix traded near 66 times trailing earnings and Digital Realty near 87 times. Office REITs such as SL Green, BXP and Hudson Pacific traded at roughly 9 to 11 times forward earnings, and two of them were below book value.5 One market is priced for AI-driven growth, and the other is priced as if its debt problems will continue.

Office debt: the data agree on the trend, not the number

Every major tracker shows office loan distress getting worse. They disagree on how bad it is, and the reason is definitions.

• Trepp put the office CMBS delinquency rate at 12.00% in August, up 9 basis points. Big loans that newly went delinquent outweighed two large loans that left delinquency.21 Its overall CMBS rate counting performing matured balloon loans was 9.81%.21
• Wolf Street, citing later data, reported that the office rate rose again to 12.2% in September.23
• CRED iQ measured office delinquency at 13.2% in August, the highest since at least 2019 and up from 8.1% in July 2024. That figure includes loans that are past maturity but still paying interest. Without them, the rate is 9.8%.22 CRED iQ's special servicing rate reached 15.7%, also a high for the period it tracks.28
• Morningstar DBRS gave the highest figure, putting office delinquency at 14.87% in its August analysis.26

The spread between 9.8% and nearly 15% matters. It depends mostly on how each firm counts loans that have reached maturity but have not been paid off, and that is now the core of the office problem. CRED iQ found that 71% of distressed office balance comes from a failed or upcoming refinancing, not from missed monthly payments.22 Trepp's August data also showed that non-performing matured balloon loans made up 81% of newly delinquent balances.21 Buildings that still produce income are defaulting because their debt cannot be rolled over at today's rates.

The forward data look worse. CRED iQ found that over the past year, 51% of office loans moved to special servicing while they were still current, about 11 months before maturity on average. Of the current loans that transferred between August 2024 and August 2025, 72% later became seriously delinquent or matured without paying off. Only 15% returned to normal servicing.22 Early deals reporting September data showed office delinquency above 14%.28 About $39 billion of office CMBS matures in the next 12 months, and $13.9 billion of that already shows warning signs. Examples include 3 Bryant Park and 280 Park Avenue, whose debt service coverage is 0.72 times.22

The problem extends beyond CMBS. Yardi Matrix counts about 14,000 office properties with loans that recently matured or will mature by the end of 2028, totaling $289.2 billion, or a third of all office loan volume.27 Eight of the 25 largest metros had office vacancy above 20%, and those markets alone face $61.6 billion in maturing loans.25

Extend-and-pretend is ending

For several years, lenders avoided losses by extending loans. Wolf Street describes one current case: a loan on Hollywood office and studio properties owned by Blackstone Property Partners and Hudson Pacific Properties. It was modified with a 14-month maturity extension, and Fitch noted it will stay under a full cash trap until it is repaid.23 Single-tenant buildings with full occupancy are failing too. CRED iQ points to a $209 million loan on a fully leased Sunnyvale property with Apple as its largest tenant. It went to special servicing in August and received a default notice on September 1.22

This matters because extensions only make sense if lenders expect a refinancing window to open. With the prime rate at 7.00% and SOFR near 3.87% in late September, and with lenders lending against less of each property's value, that expectation is getting harder to defend.

Why banks look calm

Bank balance sheets tell a different story. The seasonally adjusted delinquency rate on commercial real estate loans across U.S. banks was 1.53% in the second quarter of 2026, below the rate on single-family mortgages.24 One reason is that the national bank figure covers every property type and loan size, not just the securitized office deals in CMBS data. Bank extensions and modifications may also keep stressed loans out of the delinquent category. That is a likely reading, not something the data confirm. Either way, office distress shows up most clearly in securitized debt.

Data centers: a construction boom that needs financing

Data center REITs have the opposite problem: they have more demand than they can finance and build quickly. Planned expansion and development spending in the Americas by the three largest data center REITs rose from $1.5 billion in the third quarter of 2021 to $21.5 billion in the second quarter of 2026. Digital Realty, Iron Mountain and Equinix together have $6.5 billion of projects underway in Northern Virginia alone.20 Digital Realty has 1.4 gigawatts under construction at a total cost of $20 billion, with 63% pre-leased and an expected stabilized yield of 11.5%.19 Its backlog hit a record $1.4 billion at its own share.2

REIT rules make that pace expensive. REITs must pay out at least 90% of taxable income, so they have to keep returning to capital markets to fund construction.11 Morgan Stanley estimates global data center spending at about $2.9 trillion from 2025 through 2028. Hyperscalers can cover roughly $1.4 trillion of that internally, which leaves about $1.5 trillion for outside capital. Private credit is expected to supply about $800 billion of it.13 Construction loans on hyperscale-leased projects have reportedly priced at SOFR plus about 250 to 400 basis points, at 65% to 70% of cost. Outstanding data center securitizations grew from about $4 billion in 2020 to $61 billion in 2026.13 Large single deals continue. Related Digital and Blackstone secured $16 billion of construction financing for an Oracle-leased campus in Michigan.13

As a result, data center financing now looks like the conservative office lending of the past: underwriting is based on the tenant's credit and the length of the lease. Lenders mainly assess whether the tenant is strong, how long the lease runs, and whether power will be delivered on time.13

Wall Street brings the boom to public markets

The newest development is the arrival of data center vehicles from large asset managers. Blackstone Digital Infrastructure Trust (BXDC) raised $2 billion in its IPO. Blue Owl reportedly plans its own public REIT seeded with about $6.5 billion of existing data center assets. That structure differs from Blackstone's, which raised money before owning specific assets.16 Blue Owl says it owns more than 130 data centers worth over $18 billion.15

The early results argue for caution. BXDC was described as pre-revenue in its second-quarter filings and did not yet appear to own or operate any data centers. Its stock performance since its May listing has been called underwhelming.1 Equinix and Digital Realty shares have also stalled since BXDC launched.15 CNBC lists the main risks as project delays, power and permitting limits, reliance on a few large tenants, refinancing and liquidity.15 Rules on new projects are tightening. Loudoun County has moved to pause data center applications8, and moratoriums in New York and Texas are also cited.15 Some analysts say these limits help established owners, because scarcity supports the value of existing buildings.4

Assessment

The coverage points to one conclusion. Real estate is splitting according to who can secure long-term financing on acceptable terms. Many office owners, even those with tenants, cannot refinance. Data center developers with leases signed by investment-grade hyperscalers can borrow heavily. The weak spot in that strategy is tenant concentration. At Digital Realty, the largest lease in each of the last 10 quarters came from one of only six hyperscalers.2 The more data center debt there is, the more lenders depend on those same six companies.

Office is not uniformly bad. Some see room for rent increases at top-tier buildings because little new supply is coming.5 Those landlords, however, are still exposed to the loan maturities described above. For REIT investors, the main question is how a company will refinance its debt, not which property type it owns.