Defaults rising as boom-era CRE mortgages come due

It "could be disastrous" for the $11 trillion market, Taconic exec says

TRD New York /
Nov.November 15, 2016 05:20 PM

Several worrying indicators in the commercial real estate market, combined with rising borrowing costs, point to a potential downturn in 2017 for the $11 trillion sector.

Landlords are already battling a slowdown in some multifamily and retail markets, and nationwide, commercial property sale volume was down by 8.6 percent during the first nine months of the year, according to Real Capital Analytics data cited by the Wall Street Journal.

Delinquency rates are up too, as commercial mortgage-backed securities issued during the loose-lending days before the financial crisis reach their 10-year mark. The volume of CMBS coming due in 2016 and 2017 is more than $130 billion, outpacing previous years by far. Suburban office and retail properties are being hit particularly hard.

Not that New York is immune. A group of developers and investors that includes Jacob Chetrit behind the three properties at 500-512 Seventh Avenue is negotiating an extension for a $139.6 million loan issued in 2006. The 1.2 million-square-foot properties are 15 percent vacant, but remain current in monthly debt service.

The trend is occurring just as borrowing is set to become more expensive. Interest rates have increased since Donald Trump was elected president and are expected to rise further. In addition, regulatory changes to Dodd-Frank set to take effect in December will likely make borrowing costs more expensive.

“I can paint a picture that it could be disastrous, with runaway inflation and high interest rates,” said Charlie Bendit, co-chief executive of Taconic Investment Partners LLC. [WSJ]Chava Gourarie 


Related Articles

arrow_forward_ios
(Getty, iStock)

Cash-strapped borrowers are increasingly giving keys back to lenders

Cash-strapped borrowers are increasingly giving keys back to lenders
Kroll Bond Rating Agency founder Jules Kroll (Getty; iStock)

Kroll reaches $2M SEC settlement over CMBS, CLO ratings

Kroll reaches $2M SEC settlement over CMBS, CLO ratings
Starwood's Barry Sternlicht and Pacific Retail's Steve Plenge with Parkway Plaza mall in San Diego and the Plaza West Covina mall in Los Angeles (Getty, Starwood, Pacific Retail)

Last bidder standing has big plans for Starwood’s troubled mall portfolio. But first, creditors must sign off

Last bidder standing has big plans for Starwood’s troubled mall portfolio. But first, creditors must sign off
Jared Chupaila, CEO of Brookfield Properties’ retail group, with Florence Mall and Fashion Square (Brookfield, TripAdvisor, iStock)

Brookfield and Namdar plan to hand over keys to struggling malls

Brookfield and Namdar plan to hand over keys to struggling malls
With about $23 billion of hotel-related CMBS loans in forbearance, more lenders are looking to offload those mortgages. (iStock)

Hotel industry is in trouble and more lenders want out

Hotel industry is in trouble and more lenders want out
Matt Salem, KKR head of real-estate credit (Getty; KKR)

Hotel and retail mortgages dragging down recovery

Hotel and retail mortgages dragging down recovery
The special servicing rate has increased each month since the coronavirus pandemic hit the United States, and clocked a 55 basis point increase to 10.04 percent in August (iStock)

CMBS delinquencies fell, but hold the applause

CMBS delinquencies fell, but hold the applause
BMO Capital Markets CEO Dan Barclay and Paul Vanderslice (BMO, LinkedIn)

Ex-CCRE head Paul Vanderslice joins BMO Capital Markets

Ex-CCRE head Paul Vanderslice joins BMO Capital Markets
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...