Office Crash, CMBS Goes Pop, Rents Fall Nationally

Welcome to our first distressed debt newsletter.

This week we take a look at some office headlines as it appears the topic of workers returning to the office has taken a backseat to interest rates, inflation and recessionary headlines. In short, the office sector seems to be facing a laundry list of challenges- the remote work revolution, maturing leases, maturing CMBS loans, falling rents and rapidly inflating costs to name a few- that are likely to leave this sector suffering from more than just long COVID symptoms.

For our clients, we typically recommend a note sale on Office NPLs when there is little to no equity, heavy rollover thru EOY 2025, older vintage class B & C product, in destination submarkets and especially in MSAs with declining net population.

What we certainly don't recommend is letting the lack of a resolution on a non-performing loan scenario negatively impact its surroundings and community- which we discuss more in our featured article below.

Featured Article:

THE SOCIAL IMPACT OF DISTRESSED CRE LOANS

Ugly wire fences. Boarded-up windows. “Do Not Enter” signs. These are not the hallmarks of a thriving community—but they happen frequently when a commercial real estate (CRE) loan is in distress. Look past the numbers and you’ll see the real damage that a distressed CRE loan can do to a community if not resolved quickly, and the opportunity that selling that loan could represent. Selling a distressed loan means a return to economically viable use, and a future use for a property or site that was once impaired, particularly when a workout is not a viable solution.

Top 3 Distressed Stories:

OFFICE MARKETS ARE THE REAL ESTATE CRASH WE NEED TO WORRY ABOUT

While everybody’s been sweating over the housing and labor markets, the office market has been streaking toward a hard landing. The Federal Reserve’s new hawkish stance has pushed stocks lower and heightened concerns about the direction of the US economy over the coming year. Anxiety has been centered on labor and housing crashes, but investors, city mayors and economic developers have kept up hopes for improvement in the office market. It’s best to let go of that wishful thinking.

CMBS MATURITY BALLOON LOANS POP IN AUGUST

Compared to previous months, CRED iQ observed a surge of CMBS loans with non-performing maturity balloons in August 2022,” wrote Marc McDevitt, a senior managing director at CRED iQ. There was approximately $4.7 billion in outstanding loans that were characterized as non-performing maturities as of August 2022. This figure excluded debt with properties that have entered into foreclosure as well as real estate-owned (REO) assets, but included loans that may have transferred to special servicing prior to scheduled maturity dates.?

RENTS FALL NATIONALLY FOR THE FIRST TIME IN 9 MONTHS

The median rental price in the U.S. fell by $10 month-over-month in August, the first monthly decline since November, according to a Realtor.com report. It was also the first time since then that the median rent — which came in at $1,771 — didn’t hit a record high.

Top 3 Distressed CRE Stories:

SEVEN NORTH TEXAS WALMARTS HEADED FOR FORECLOSURE

More than half a dozen North Texas Walmarts are facing foreclosures. The owner, Carrollton-based investor Riba Walmart Investment LLC, has reportedly defaulted on $41.5 million in loans, according to the Dallas Morning News. The seven retail buildings — all occupied by Walmart Neighborhood Markets stores — are scheduled to be sold at foreclosure auctions early next month. However, negotiations with the borrower are still ongoing. The debt on the properties was made last year and is held by a fund represented by Dallas-based Reserve Capital. According to OpenCorporates, Riba Walmart Investment dissolved in June of this year.

HISTORIC SAN FRANCISCO HOTEL ON FAMOUS HILLTOP FLOPS INTO LOAN DEFAULT

Huntington Hotel, a nearly century-old lodging tower perched on San Francisco’s luxurious Nob Hill, is in default on its mortgage, documents filed on Aug. 16 with the San Francisco County Recorder’s Office show. The loan in default totals $56.2 million and was provided by Deutsche Bank New York Branch, which is seeking to foreclose on the delinquent loan, according to the San Francisco property records.

LENDER WINS FORECLOSURE AUCTION ON SOUTH FLORIDA MALL WITH $43M BID

The 470K SF mall, which was built in 1979 and sits on a 30-acre site, was put on the block Tuesday and sold with a $43M credit bid by the CMBS trust. The property traded doesn't include the mall's anchors, and is partly leased to tenants including Victoria’s Secret, Buffalo Wild Wings and Bath & Body Works. The landlord defaulted on a $95M loan during the pandemic, and turned over control of the property to a receiver.

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Michael Jimenez is a CRE Finance and NPL expert with 10+ years of experience, as well as the Founder and CXO of Xchange.Loans.

Xchange.Loans is a secure loan sale marketplace where CRE lenders can Buy, Sell and Value commercial loans and NPLs online with no seller fees.