HomeBusinessLandlords with $1.2 trillion in debt face mounting default risks

Landlords with $1.2 trillion in debt face mounting default risks

(Bloomberg) — About $1.2 trillion in debt on U.S. commercial real estate is “potentially problematic” because it is highly indebted and property values ​​are declining, according to Newmark Group Inc.

Most read from Bloomberg

Offices are the biggest problem in the short term. They are responsible for more than half of the $626 billion in high-risk debt that will mature by the end of 2025, the brokerage estimates. According to real estate analysis firm Green Street, office values ​​are down 31% from a peak in March 2022, when the Federal Reserve began to hike interest rates.

Concerns are mounting that defaults will increase as property values ​​fall and costs rise for landlords who must refinance at higher interest rates. Over-indebted owners are often more motivated to withhold payments than to put money into properties with reduced prospects of return. Blackstone Inc., Brookfield Corp. and Goldman Sachs Group Inc. are among the investors who have defaulted or relinquished offices to lenders this year.

See also  Bodegas Put on Notice as Visa Fights Back on Card Surcharges

“They will have every incentive to return the keys to lenders,” David Bitner, global head of research at Newmark, said in an interview. “I’m shocked that not much more has happened.”

Newmark defines “potentially problematic” as properties whose debts represent at least 80% of the property’s market value, based on price indices, including Green Street’s.

Banks, which have tightened lending since the collapse of Silicon Valley Bank this year, bear the bulk of risky debt, with $303 billion in potentially problematic loans maturing by 2025, Newmark said.

Read more: Investors are wary of commercial real estate risk and hesitant about borrowing

After offices, apartment buildings are the second largest category of potentially distressed real estate properties, requiring $192 billion in debt to be refinanced by 2025, Newmark estimates.

According to Bitner, landlords who try to hold on and weather the storm are likely to take a bigger hit than those who cut their losses more quickly.

See also  EV Stock VinFast Rises Again. It does not make any sense.

“There will be a reckoning,” he said, “and anyone who waited to solve the problem will regret it.”

Most read from Bloomberg Businessweek

©2023 Bloomberg LP

- Advertisement -


Please enter your comment!
Please enter your name here

Most Popular

Recent Comments