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 


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