DC's Mayflower Hotel 'Underwater' in Growing Pool of Distressed Assets
The Fiscal Times reports: According to a recent article on the Fiscal Times’ website, “$1.4 trillion of commercial real estate loans will come due nationwide in the next four years…” This is bad news for owners of commercial property, who have watched the value of their assets fall below their original loan amounts during the slide in property pricing over the past three years. Exemplifying this growing pool of “underwater assets,” the Fiscal Times goes in depth on Washington, DC’s historic Renaissance Mayflower Hotel. Owner Rockwood Capital took on around $200 million in debt in 2007 to buy the property for $260 million. The value of the property halved over the intervening years and today, Rockwood must find alternative financing to keep their investment afloat until property values regain lost ground. Otherwise the group faces defaulting on the property and the ensuing consequences. Many banks and other lenders have preferred to help owners avoid this situation, however, by offering “pretend and extend” short-term financing. Thereby, both lender and owner can hope to avoid foreclosing on the asset by waiting until property pricing comes off its lows.
On these underwater situations, the Fiscal Times quotes Anthony Westreich, chief executive of Monday Properties, who stated that, “While ‘lending and extending’ is keeping some properties out of foreclosure…other borrowers are surviving on savings or loans that are still locked into low interest rates. All that could change if interest rates rise, making loan payments pricier…which could push more properties onto the market and create opportunities for buyers.’
Ben Thypin, senior market analyst at Real Capital Analytics, agreed with Mr Westreich when he stated that, “The real flood of these maturing loans hasn’t happened, yet…if the economy doesn’t get better or gets worse, it’s not very good news.” On Mr Thypin’s point, the Fiscal Times concludes that “Unlike the residential mortgage market collapse, malaise in the commercial real estate sector is more a symptom of a sluggish economy than a looming threat to recovery…Trouble in commercial real estate merely reflects the health of the economy, whether slower retail sales, decreased tourism or corporate downsizings. While the sector affects state and local tax revenues and economic growth — thereby touching every taxpayer and resident in the country — it’s unlikely to single-handedly trigger a repeat of the 2008 financial crisis.”
View the full article on The Fiscal Times: DC's Mayflower Hotel 'Underwater' in Growing Pool of Distressed Assets
Articles related to this topic:
Second Quarter Surge in CRE Market
Commercial Mortgage Defaults Slow in Second Quarter
Hotel Sales Outperform as Travel Picks Up
New York Borrowers Wait for Ailing iStar to Make Next Move
Barclays Reclaims DC's Distressed St Regis from Unlucky Irish Investors
Posted by: Nina Turner