Fortress Buys $1B of Capital One Loans

Fortress Investment Group is making one of the biggest bets on New York City offices in recent memory, buying up approximately $1 billion of loans from Capital One.

The private lender’s purchase of the debt portfolio unfolded this week, the Commercial Observer reported. The makeup of the loan portfolio wasn’t reported, but a large portion of it is said to revolve around office loans in the Big Apple. It’s also unclear if Fortress bought the debt at a discounted price, but it often buys loans “at near par,” a source told the publication.

Even if the loan specifics aren’t out there, there are nuggets regarding Capital One’s office lending in the city. The Virginia-based institution has made office loans at The Durst Organization’s 855 Sixth Avenue and GFP Real Estate’s 40 Exchange Place.

In its second quarter earnings, Capital One disclosed that it had reclassified $888 million in office loans “from loans held for investment to loans held for sale.”

Neither company immediately commented on the debt sale.

The purchase comes at a bleak time for New York’s office market, potentially giving it some juice going forward. Vacancies persist across the city and distress is creeping up on landlords, who are increasingly defaulting on their properties. In the second quarter, available office space in Manhattan reached a record high 70.3 million square feet, according to Savills.

For months, office lenders have been driving desperately towards an off-ramp, fretting that the properties secured by their loans will not accumulate enough revenue for owners to pay debt service and that assets’ values will fall below the loan balance. JPMorgan Chase, Deutsche Bank and Barclays are among those who have weighed office debt sales.

Fortress positioned itself to step into the growing void spurred by the spring regional banking crisis. During The Real Deal’s NYC Showcase + Forum in May, managing director Steven Stuart said that, despite perceptions of alternative lenders, the company was in pursuit of opportunities that would get it paid back on loans, adding Fortress wasn’t interested in taking over a property — that could be put to the test considering the state of the office market, depending on the levels of distress Fortress just acquired.

— Holden Walter-Warner