People ain’t coming into the office anymore and why should companies be owning and paying for empty office space?
Some Wall Street banks, worried that landlords of vacant and struggling office buildings won’t be able to pay off their mortgages, have begun offloading their portfolios of commercial real estate loans hoping to cut their losses.
It’s an early but telling sign of the broader distress brewing in the commercial real estate market, which is hurting from the twin punches of high interest rates, which make it harder to refinance loans, and low occupancy rates for office buildings — an outcome of the pandemic.
Late last year, an affiliate of Deutsche Bank and another German lender sold the delinquent mortgage on the Argonaut, a 115-year-old office complex in midtown Manhattan, to the family office of the billionaire investor George Soros, according to court filings.
Around the same time, Goldman Sachs sold loans it held on a portfolio of troubled office buildings in New York, San Francisco and Boston. And in May, the Canadian lender CIBC completed a sale of $300 million of mortgages on a collection of office buildings around the country.
“What you are seeing right now are one-offs,” said Nathan Stovall, director of financial institutions research for S&P Global Market Intelligence.
Mr. Stovall said sales were picking up as “banks are looking to shrink exposures.”
In terms of both number and value, the troubled commercial loans that banks are trying to offload are a sliver of the roughly $2.5 trillion in commercial real estate loans held by all banks in the United States, according to S&P Global Market Intelligence.
But these steps indicate a grudging acceptance by some lenders that the banking industry’s strategy of “extend and pretend” is running out of steam, and that many property owners — especially owners of office buildings — are going to default on mortgages. That means big losses for lenders are inevitable and bank earnings will suffer….
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Michael Hamilton, one of the heads of the real estate practice at O’Melveny & Myers, said he has been involved with a number of deals in which banks are quietly giving borrowers a year to find a buyer for a property — even if it means a building is sold at a substantial discount. He said the banks are interested in avoiding a foreclosure and borrowers benefit by getting to walk away from a mortgage without owing anything.
“What I have been seeing is the cockroaches are starting to come out,” said Mr. Hamilton. “The general public does not have a sense of the severity of the problem.”
Note…
This less workers thing IS gonna hurt local and state companies and government’s tax bases….