The Debt Ceiling and CRE Finance

The United States could exceed its legal ability to borrow to pay its debts as early as June 1 — aka hit the debt ceiling. Such an event would enormously damage the commercial real estate industry, in particular its ability to finance and refinance acquisitions. Speaking of problematic, the dominos continue to tumble in the Los Angeles office market.

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— Tom Acitelli, Co-Deputy Editor

Debt Default Could Prove Catastrophic for Commercial Real Estate: Here’s Why

This can’t be what the Founding Fathers had in mind. President Joe Biden and House Speaker Kevin McCarthy ended their May 16 meeting at the White House — their second such gathering in one week — without any consensus on how to generate a congressional agreement to raise the nation’s debt ceiling before a June 1 deadline set by the Treasury Department. And last week, during a May 10 CNN town hall, former president Donald J. Trump urged congressional Republicans to enter into default. The following morning, Treasury Secretary Janet Yellen called the suggestion of default “unthinkable,” and implored lawmakers to compromise. If this sounds like serious business, rather than political bluster, it’s because economists and commercial real estate executives are increasingly concerned that Republicans are willing to breach the nation’s $31.4 trillion debt ceiling and Democrats are unwilling to concede to GOP demands for government spending cuts, notably to recent Biden administration climate initiatives and COVID-19 era emergency policies.

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Sony Pictures’ Future LA Office Building Is In Trouble, Too

Office investors are facing a bit of a sticky wicket. A big loan tied to another office campus in Los Angeles is on the hot seat, despite Sony Pictures recently signing for 225,000 square feet at the development months ago. Borrower and landlord Onni Group’s $408 million commercial mortgage-backed securities loan from Natixis tied to the big Wilshire Courtyard campus on L.A.’s Miracle Mile has been sent to special servicing before its expected expiration in July, The Real Deal reported, citing data from Trepp and Morningstar Credit Information and Analytics. The building has been failing to earn 1.1 times the monthly debt service, which would have allowed Onni the chance to extend the loan by a year. The asset has been dragged down by rising interest rates and the unprecedented drop in demand for office space. The loan’s special servicer said two major tenants — Mediabrands Worldwide and Skydance Media — are set to vacate 165,000 square feet of space at the property when their leases expire later this year, per TRD. Meanwhile, Sony’s lease doesn’t start until 2024.

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