Office lenders looking for an off-ramp
Is the other shoe on commercial real estate?
If that’s the case, prominent commercial real estate lenders, particularly offices, are looking at selling their loans in low-demand cities, including New York, Bloomberg reported. Among them are JPMorgan Chase, Deutsche Bank and Barclays.
As a sign of how motivated lenders are to reduce debt, some are offering discounts of 3 to 25 percent. Much of the talk of selling debt has been conducted behind closed doors, and debt deals are largely kept out of the public eye.
Risks lenders face include the properties backed by their loans not generating enough income to allow their owners to service the debt and the value of the assets falling below the loan balance.
“Office in particular is a dirty word for lenders,” Meadow Partners’ Jeff Kaplan told the publication.
Selling loans is normal business for banks. However, what isn’t the case is the struggle they have to find buyers. Hence the discounts.
According to the Federal Reserve, lenders across the country originated $316 billion in commercial loans in the first half of the year. But rising interest rates and problems with certain types of commercial real estate are prompting lenders to reverse course.
Many are reluctant to take out debt because they fear that rising interest rates and inflation will reduce the value of those loans in the future. Some commercial real estate players are more likely to take out adjustable-rate loans than high-interest fixed-rate loans.
Commercial lenders are reacting to falling house prices across the sector. Commercial property prices are down 13 percent from their peak in May, according to the Green Street Commercial Property Price Index. Malls have been hardest hit, down 23 percent, but even industrial prices have fallen 17 percent since May.
Office landlords could be the worst off in the long run. A study by NYU’s Arpit Gupta and Columbia University’s Vrinda Mittal and Stijn Van Nieuwerburgh estimates that office stock in New York City will decline in value by 28 percent, or $49 billion, by 2029.
— Holden Walter-Warner