Defaults rising as boom-era CRE mortgages come due

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

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
415 West 13th Street is currently occupied by clothing retailer Allsaints. (Google Maps)
Appraiser cuts Meatpacking District store’s valuation to the bone
Appraiser cuts Meatpacking District store’s valuation to the bone
The rate of loans sent to special servicers continued to fall in March. (Unsplash)
CMBS special servicing rate declines in March
CMBS special servicing rate declines in March
Douglas Durst with 1133 Avenue of the Americas (left) and 114 West 47th Street (Google Maps, Getty)
Durst refinances two Midtown buildings with $1.1B CMBS loan
Durst refinances two Midtown buildings with $1.1B CMBS loan
Vornado's Steve Roth. (Getty, Google Maps)
Here’s what tenants are paying at Vornado’s 909 Third Avenue
Here’s what tenants are paying at Vornado’s 909 Third Avenue
The luxury Beekman Tower in Midtown East is now worth nearly half its $146 million valuation from 2018. (Beekman Tower)
Value of Beekman Tower cut by 45% in new appraisal
Value of Beekman Tower cut by 45% in new appraisal
The Promenade on the Peninsula in Rolling Hills Estates, California (Google Maps, iStock)
Landlords take on short-term debt to spruce up struggling assets
Landlords take on short-term debt to spruce up struggling assets
Crystal Mall in Waterford, Connecticut  (Crystal Mall via Facebook, Getty)
Simon’s Connecticut mall valuation slashed by 88%
Simon’s Connecticut mall valuation slashed by 88%
Acore Partner Warren de Haan. (Acore, Getty)
Acore Capital raises $1B to provide rescue cash to hotels
Acore Capital raises $1B to provide rescue cash to hotels
arrow_forward_ios

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

Loading...