If you were on a beach in the Hamptons or vacationing in Europe last month, you might have missed a surprising bit of real estate news.
Fortress Investment Group, the private equity firm known for flexing its muscle when others are in distress, bought a $1 billion portfolio of Capital One Bank’s office loans concentrated in New York.
The deal is big news for the real estate industry, which usually slows to a crawl in August as dealmakers head for their favorite vacation spots. The dog days have been even more languid this year, as the Fed’s interest rate hikes have slammed the brakes on activity.
For the industry faithful eager to see some green shoots that get deals going again, the Fortress purchase, first reported by the Commercial Observer, provides a glimmer of hope.
“Don’t know details about fortress buying $1B of NYC office loans from capital one and don’t care,” RETwit’s @EllliotttB wrote on X. “All I care is that handcuffed institutional investors start getting fomo as the deployment periods tick lower to get this show on the road.”
Of course, many people do care about the details, especially just how much Fortress paid for the loans. Big Wall Street lenders like Goldman Sachs and JPMorgan have been trying to sell commercial real estate loans — notably office, hotel and multifamily debt — but have been having trouble finding buyers, according to Bloomberg.
If Capital One were eager to offload the debt and sold at a deep discount, the deal could inspire fear of missing out in the lending community and kick off the market reset many are waiting for.
If, however, Fortress bought the loans close to par, it would signal that one of the industry’s canniest players thinks the office market is more resilient than many perceive.
The deal could affect another large portfolio of CRE loans for sale: Signature Bank’s $36 billion worth of commercial mortgages, which hit the market in late August.
After the New York-based lender collapsed in March, New York Community Bank bought more than $38 billion of its assets — but left about $60 billion of CRE, business and single-family loans on the table. That led to whispers that Signature’s commercial mortgages were troubled.
Jay Martin, head of the landlord group the Community Housing Improvement Program, said at the time that the lack of interest was “really concerning” and “may speak to broader problems within the multifamily industry.”
For the industry faithful eager to see deals get going, the Fortress purchase looks like a spark.
Signature’s failure in March, along with the collapse of Silicon Valley Bank and the takeover of First Republic Bank, constituted a regional banking crisis that, along with rising interest rates, weighed on CRE lending.
New York City’s top 20 commercial real estate lenders issued $26 billion worth of loans in the past 12 months, down from $30.5 billion the year before, according to The Real Deal’s rankings. The number of mortgages dropped 28 percent to just above 12,000.
With lenders sitting on their hands, borrowers with maturing loans are fighting an uphill battle to refinance. Not surprisingly, there has been a steady drumbeat of foreclosure actions.
CMBS bondholders last month filed to foreclose on Maefield Development’s $750 million loan on 20 Times Square. Nightingale Properties, whose CEO, Elie Schwartz, is accused of misappropriating tens of millions of dollars from small-time investors, has faced several foreclosures. And SL Green in August ended a decade-long dispute when it foreclosed on Ben Ashkenazy’s stake in 625 Madison Avenue.
Signs of trouble are also showing in the multifamily market, particularly in the Sun Belt, where investors have flocked in recent years.
Syndicators such as Tides Equities and Applesway Investment Group built huge portfolios of apartment buildings and are struggling to repay their loans. That has put a spotlight on Arbor Realty Trust, which became the go-to lender for some of these operators.
The Long Island-based company, run by Ivan Kaufman, saw delinquencies in its $13 billion bridge-loan portfolio jump 1,500 percent from December to about $124 million. That could be a sign of more trouble to come in the space.
The borrowers who are getting deals done are scouring the planet for lenders to finance their purchases.
When David Werner bought Vornado Realty Trust’s 29-story office building at 40 Fulton Street late last year for about $100 million, he turned to two relative unknowns — UMB Bank and the Bank of New Hampshire — for $70 million in debt.
Silverstein Properties and Metro Loft Management went south of the border in July to close their purchase of 55 Broad Street from the Rudin family, which granted the buyers extra time to search for financing after the contract signing. Eventually, Mexico-based Banco Inbursa provided a $220 million loan. Silverstein and Metro Loft plan one of the city’s largest office-to-residential conversions ever.
These kinds of deals illustrate just how difficult the lending market is now. But they could also be seen as commercial real estate adapting to the new, harsher environment, or even early signs of a resurgence. Whatever the case, they are as good a late-summer vibe check as there is.