What's Trending in Real Estate in March 2023

This is not a cheery month for commercial real estate news. We’ll try to find some positive news next month, but as legendary TV newscaster Walter Cronkite (aka, the most trusted man in America) used to say, “And that’s the way it is.”

Webinar: Bank Turmoil and What It Means for CRE & Capital Markets

Trepp will present a webinar next Friday, March 24 at 1 pm Eastern called “Bank Turmoil and What It Means for CRE & Capital Markets.” The event will examine the latest banking news and what it means for market participants. Topics will include:

• What Happened to Silicon Valley Bank and Signature Bank and Why it Matters: Impact on CRE & Capital Markets
• Lending Liquidity
• Origination Spread Trends
• $70 Billion in Upcoming CMBS Maturities
• Next Week’s FOMC Decision

For more information and to register, go here.

Hotels Face a Tough Road Ahead with Loan Defaults Possible

A recent WSJ article, “Remote Work Threatens Business Hotels’ Recovery, Boosting Default Risks,” notes that hotels relying on business travel and conferences are facing refinancing challenges because of falling occupancy rates and property values. “Persistently low occupancy rates for business-focused hotels have driven down their property values. As a result, lenders are asking hotel owners to put up more capital before agreeing to refinance their loans—but cash-strapped borrowers saddled with lots of debt might not be able to meet the requirements,” according to the article—which also warns that, in the next 2 years, tens of billions of dollars in loans using hotels as collateral are coming due. “Roughly $30.9 billion, or about 30% of the $101.63 billion securitized hotel loans in the U.S., are set to mature by 2024, according to commercial real estate brokerage firm Newmark Group.

Office Landlord Defaults Are Escalating as Lenders Brace for More Distress

It’s not only hotels: office landlord defaults are on the rise, according to another WSJ article. According to the article, “The delinquency rate for office loans that back commercial-mortgage-backed securities remains low, but it is heading higher.” As with many of the changes in the past 3 years, blame this one on Covid. More developers, writes Peter Grant, believe that remote and hybrid work habits have permanently impaired the office market. And the problem is rearing its head coast to coast:

• Brookfield Asset Management recently defaulted on a total of more than $750 million in debt for a pair of 52-story towers in Los Angeles
• Real-estate firm RXR is in talks with creditors to restructure debt on 61 Broadway, a 34-story tower in Manhattan’s financial district,

“Commercial real estate markets are currently in a recession,” according to Owen Thomas, CEO of Boston Properties, one of the country’s largest office building owners.

CMBS Delinquency Rate Jumps in February 2023, 2nd Biggest Rise Since June 2020

In February, after remaining fairly steady over the previous 7 months, commercial mortgage-backed securities (CMBS) delinquencies jumped 18 basis points to 3.12% from January’s 2.94%. The preceding 6-month average was 2.98%. The report from Trepp noted that 1) the January number was the second-lowest since the arrival of Covid in early 2020; and that 2) February’s rise of 18 basis point rise was the second-largest increase since June 2020, when the pandemic “sent delinquency rates skyrocketing,” according to Trepp. For a lot more numbers, as well as delinquencies by property type, go here.