Jeff Blau predicts “wave of defaults” on commercial and hotel loans

Related CEO confident workers will want to return to offices, but says travel will take a hit

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Related CEO Jeff Blau says he anticipates there will be a wave of defaults on commercial and hotel loans as the implications of the pandemic become clearer.

In an interview with Bloomberg this week, Blau said that with the beginning of May looming, landlords are again wondering what will happen with rent payments.

“Landlords use those rents to pay their own employees, property taxes to states and municipalities — and ultimately debt service to the bank,” he said. “Once that ecosystem of rent to expenses to interest to the banks gets broken at one part of the chain, that’s going to become a problem.”

While the extent of the fallout has yet to be seen on commercial mortgages, he predicted retail and hotels would be hit particularly hard.

In the short-term, banks have been trying to solve liquidity problems with forbearance, he said but those will “quickly become credit problems as those assets become less valuable and unable to service the debt after the forbearance period.”

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“I do think we are soon to come into that problem in the commercial lending market,” he added.

Asked about Hudson Yards, Blau said the company was working out protocols at its office space, including conducting temperature checks when people entered the building, and requiring all employees to wear gloves and masks.

He dismissed the idea that people won’t want to return to offices after getting used to working from home and conducting daily meetings over Zoom, but he conceded that return to full occupancy will likely be slow.

“I think people will start going back to their office much sooner than they start travelling,” he said.

Blau did not comment on reports that Neiman Marcus, the anchor tenant at the Hudson Yards mall, is expected to file for bankruptcy protection this week. The move would have major implications for the mall, as the leases of smaller tenants are reportedly tied to Neiman staying put. [Bloomberg] — Sylvia Varnham O’Regan

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