Seven Hills Cuts Office Loans to 13% After Dallas Payoff at 97%
Mortgage REIT Seven Hills Realty Trust said a Dallas office loan repaid at about 97% of its $44.2 million balance, cutting office exposure to about 13%.
Why it matters
- Seven Hills Realty Trust said Oct. 5 that a Dallas office loan was repaid at about 97% of its $44.2 million balance, a $1.5 million discount, well below the $6.3 million CECL reserve it had set aside.
- The commercial mortgage REIT closed two floating-rate first mortgage loans totaling $98.0 million on multifamily and mixed-use property, and said office loans fell to about 13% of its portfolio from 19%.
- Both repaid loans carried net interest margins 80 to 100 basis points below those on its new loans this year, the lender said.
Seven Hills Realty Trust (Nasdaq: SEVN), a real estate investment trust that originates first mortgage loans on middle-market transitional commercial real estate, said Oct. 5 that a loan on a Dallas office property was repaid at about 97% of its $44.2 million outstanding balance. The $1.5 million discount was "significantly below" the $6.3 million CECL loss reserve the lender had set aside for the loan as of June 30, the company said in a business update filed with the SEC.
The payoff, plus a second repayment and two new loans, cut office loans to about 13% of the portfolio as of Sept. 30, based on outstanding principal, from 19% on June 30.
What did Seven Hills announce?
| Item | Amount |
|---|---|
| New first mortgage loans closed (two) | $98.0 million |
| Proceeds from two loan repayments | $68.0 million |
| Dallas office loan balance before payoff | $44.2 million |
| Discount taken on Dallas payoff | $1.5 million |
| CECL reserve on that loan, June 30 | $6.3 million |
| Office share of portfolio, June 30 / Sept. 30 | 19% / about 13% |
| Loans in diligence, expected to close in Q4 | $121.7 million |
Source: Seven Hills Realty Trust business update, Oct. 5, 2026.
The two new loans are both floating rate, with three-year initial terms and two one-year extension options, the company said:
- A $68.0 million loan to refinance Populus Waterside, a Class A, 344-unit multifamily property in Chattanooga, Tennessee, completed in 2024.
- A $30.0 million loan to refinance a 246,000-square-foot property in Charlotte, North Carolina, with about 202,000 square feet of retail and 44,000 square feet of self-storage space.
The second repayment was a $25.3 million loan on a self-storage property in Fayetteville, Georgia, which was repaid in full. Since the start of the third quarter, the REIT has closed $122.3 million of first mortgage loans, including the two announced this week.
Why does a discounted office payoff matter to lenders?
Because the loss came in below the reserve, and the lender says it can put the cash back to work at higher margins. Seven Hills said the Dallas loan's net interest margin was about 80 basis points below the weighted average on new loans it has closed this year, and the self-storage loan's was about 100 basis points below. It had little financing against the Dallas loan, so the payoff adds about $46 million of lending capacity that it plans to redeploy into investments with higher earnings potential, the company said.
"The repayment of our Dallas office loan resulted in a modest discount to the outstanding balance, but we believe it represents a positive outcome for SEVN," said Tom Lorenzini, president and chief investment officer. He said the company also expects its Carlsbad, California, office loan to be repaid in the fourth quarter.
For bridge and private lenders, the update shows one way lenders are working out office loans: taking a modest discount on a payoff and moving the money into multifamily and other property types. Office stress is still showing up in securitized debt, as our report on the September CMBS delinquency rate shows. For the wider lender landscape, see our analysis of debt funds' share of non-agency CRE lending, current benchmarks on our rates and data page, and more in the Private Credit section.
Seven Hills said it will discuss the transactions on its third-quarter earnings call on Wednesday, Oct. 28.
Sources
- Seven Hills Realty Trust, Seven Hills Realty Trust Provides Business Update, Exhibit 99.1 to Form 8-K filed with the SEC (Oct. 5, 2026)
