U.S. Properties Worth $2.2 Trillion at Default Risk
Bloomberg reports: About $2.2 trillion of U.S. commercial properties bought or refinanced since 2004 are now worth less than the original price, raising the threat of more foreclosures, Real Capital Analytics said.
Prices have fallen so far that about $1.3 trillion of properties have either lost their owners’ down payment or are close to it, Robert White, president of the New York-based research firm, said in a report. The analysis includes only office, industrial, multifamily and retail properties. Hotels and raw land would “add billions more to the total,” he wrote.
“The sad fact is that many of these assets are healthy performing assets,” said Dan Fasulo, managing director of Real Capital. “Conditions have changed so much in the lending arena that many owners are going to have significant troubles refinancing.”
The report details the magnitude of the crisis in commercial real estate, where the collapse of securitized mortgages have combined with the recession to send prices plummeting and push landlords into default. U.S. commercial property prices are down 35 percent since the peak in October 2007, according to the Moody’s/REAL CPPI.
Even relatively conservative buyers are getting caught by falling values, according to Fasulo. He cited 333 Bush St., a 43-story tower in downtown San Francisco, whose owners, Hines Interests and Sterling American Property Inc., plan to surrender the building to its lenders. The move came after the main tenant, the law firm Heller Ehrman LLP, filed for bankruptcy.
The partnership paid $281 million for the skyscraper in 2007, near the top of the market.
Properties that were typically leveraged at 70 percent to 80 percent would have had tough times refinancing “even if prices held firm,” White wrote in the report. Few lenders are now willing to advance more than 50 percent to 60 percent of value in this market, he said.
About $124 billion of commercial properties have fallen into default, foreclosure or bankruptcy since prices started falling, Real Capital said. Less than 10 percent of distressed properties have resolved their financing issues and lenders have been slow to take action against property owners.
“The phrase ‘pretend & extend’ has recently entered the vernacular,” White wrote.
View the full article on Bloomberg: U.S. Properties Worth $2.2 Trillion at Default Risk
Posted by: Nina Turner