Money problems: Cracks in CRE are widening

The sky might not be falling, but real estate values and prices are.

Take, for example, RFR Realty and Kushner Companies’ Dumbo office portfolio, which has lost 68 percent of its value since 2018, according to Trepp. 

The value of the collateral behind the portfolio fell from $640 million five years ago to $207.1 million.

In San Francisco, PGIM Real Estate Finance is poised to sell a 252,600-square-foot office building for $70 million in Downtown San Francisco, whose owner went sideways on a $125 million loan.

The lender, the real estate arm of Prudential Financial in New Jersey, has cut a deal to sell the 18-story tower at 201 Spear Street in the South Financial District. The buyer is locally based Strada Investment Group and an undisclosed equity partner.

The news isn’t unique. Arbor Realty Trust’s share price fell nearly 9 percent last week after short seller Viceroy Research criticized the company’s reliance on making “high-risk” multifamily bridge loans — short-term, floating-rate debt.

Because Arbor gave out the majority of these loans in 2021, when interest rates were historically low, many of its borrowers have struggled to repay them as rates have soared. 

Valuations for these properties have simultaneously plummeted, in many cases to levels less than the debt tied to them.

Meanwhile, Deutsche Bank is prepared to take a $350 million hit on a near-empty FiDi office building. The bank is looking to sell 222 Broadway in New York City, pitching it as an office-to-resi candidate.

The stagnant market is such that the already murky pricing game is even tougher.

“Nobody has a good sense of value,” said Alex Horn, managing partner at Miami-based lender BridgeInvest. “Everyone is operating on what has happened in the past.”

While any appraisal requires some magical thinking — predicting things like income, occupancy and economic cycles — the decline in transactions has made the guessing game particularly difficult.