JPMorgan Chase, Deutsche Bank, Barclays exploring debt sales

National /

November 11, 2022 04:00 PM

TRD Staff

JPMorgan Chase’s Jamie Dimon, Deutsche Bank’s Christian Sewing and Barclays’ Nigel Higgins (JPMorgan Chase, Deutsche Bank, Barclays, Getty)

Is the other shoe about to drop on commercial real estate?

Just in case it is, prominent lenders for commercial properties, especially offices, are exploring sales of their loans in cities with low demand, including New York, Bloomberg reported. JPMorgan Chase, Deutsche Bank and Barclays are among them.

In a sign of how motivated lenders are to offload debt, some are offering discounts ranging from 3 percent to 25 percent. Many of the talks around selling debt have been held behind closed doors, and debt deals are largely being kept out of the public eye.

The risks lenders face include that the properties secured by their loans will not generate enough revenue for their owners to pay the debt service, and the assets’ value will fall below the loan balance.

“Office in particular is a dirty word for lenders,” Jeff Kaplan of Meadow Partners told the publication.

Read more

• Hedging against rate hikes gets pricey for CRE players
• Commercial prices down 13% this year
• Tough decade at the office: Analysis predicts $500B value destruction

Selling loans is a normal course of business for banks. What’s not, however, is the struggle they are having finding buyers. Hence the discounts.

Lenders issued $316 billion in commercial loans across the country in the first half the year, according to the Federal Reserve. But rising interest rates and distress for certain commercial property types has lenders reversing course.

Many have become hesitant to originate debt, fearing rising rates and inflation will reduce the value of those loans in the future. Some commercial real estate players are taking out variable-rate loans rather than lock in fixed-rate loans at high interest rates.

Commercial lenders are responding to declining property prices across the sector. Commercial prices are down 13 percent from a May peak, according to the Green Street Commercial Property Price Index. Shopping malls have taken the biggest hit with a 23 percent drop, but even industrial prices are down 17 percent since May.

In the long term, office landlords may have it the worst. A study by NYU’s Arpit Gupta and Columbia University’s Vrinda Mittal and Stijn Van Nieuwerburgh estimated that by 2029, New York City’s office stock will fall in value by 28 percent, or $49 billion.

— Holden Walter-Warner