By Jay Steinman and Karina Leiter
Jay Steinman, left, and Karina Leiter, right, of Duane Morris. Courtesy photos.
Loan defaults and workouts are on the rise again due to a confluence of factors causing headwinds including: the surge in interest rates and real estate owners inability to refinance maturing loans at affordable rates; the continued rise in the cost of certain materials needed for renovation and construction; the staggering cost of flood and windstorm coverage and the impossibility of even obtaining coverage; and the loan maturing in the near future without satisfactory options to refinance or be otherwise paid off on time.
Anticipating the fallout from potentially billions of dollars in distressed loans, lenders must be on high alert. Drawing from lessons learned in the last two historical downturns, where we witnessed unprepared lenders face severe consequences, it is imperative for lenders and financial institutions to act now.
Identifying distressed borrowers and projects is a critical first step, acknowledging the inevitability that many loans are already or may default in the near future. By taking proactive measures now, lenders can not only brace for the storm but also enhance and protect their available legal remedies in the event of a borrower’s default.
The subsequent steps outlined in this article offer a strategic guide for lenders, empowering them to navigate the complexities of loan workouts and enforcement actions with resilience and foresight.
Nonwaiver Letter
If a default has occurred the lender may want to have counsel draft a form of reservation of rights or nonwaiver letter. The letter should identify the known breaches and should also include “nonwaiver” type language which generally states that notwithstanding the breach or default the lender is reserving all rights under the loan documents and is not waiving any right or remedy thereafter even though it may be taking no action at that time to enforce its remedies.
Review Loan Documents
Before discussing a potential loan workout with a borrower or proceeding to exercise the remedies available, lenders should first evaluate their legal position, which includes conducting a thorough review of all loan documents including all organizational documents, title insurance policies, surveys and other due diligence materials received at closing and thereafter. Taking inventory of all collateral is also important if possible. A careful review of the loan file should be conducted to identify any documents and correspondence that may adversely impact enforcement of remedies. You don’t want to go to war with defective loan documents or due diligence issues that should have been addressed before the loan closed or thereafter.
We recommend that a new pair of eyes go through all relevant documents. Unfortunately, it is human nature that the counsel who handled the loan previously may have missed or overlooked something that will become critical during the workout, foreclosure or REO sale thereafter. Further, lenders should consider whether there are any technical issues with the loan documents and loan structure that could complicate enforcement.
Lenders should pay particular attention to what constitutes an “event of default” under the loan documents, keeping in mind the borrower’s financial and non-financial covenants, as well as the remedies available to both parties when an event of default occurs, including, without limitation, any required notices and applicable cure periods.
Perform Updated Diligence
After the lender and its counsel have reviewed the loan documents and defects if any have been identified, it is also prudent to conduct an updated review of diligence items with respect to the collateral which secures its loan, the borrower and any guarantors, including, without limitation, updated searches, title, review of financial information with respect to the property, borrower and any guarantor and current organizational documents. The lender may also want to obtain an updated appraisal and environmental audit.
By performing loan document review and analysis and the updated diligence, the lender will better understand its position and leverage before entering into negotiations with the borrower. Any existing liens or other title defects may complicate any foreclosure sale and further slowdown enforcement, which is already a lengthy process.
Execute a Pre-Negotiation Letter
Before beginning any substantive discussions with a borrower regarding a loan modification or forbearance agreement, we recommend that the lender require that the borrow and any guarantor execute a pre-negotiation letter agreement. A pre-negotiation letter agreement sets forth the parameters of the negotiations between borrower and lender prior to memorializing such negotiations in any written document. We recommend that the pre-negotiation letter agreement include a requirement that the borrower and any guarantors provide certain updated due diligence information described above to the extent that the lender’s file does not include this information.
Workout Negotiations
To the extent that a lender elects to withhold from enforcing its rights under the loan documents as a result of a borrower or lender default, the parties should enter into a loan modification or forbearance agreement. Generally speaking, it is best practice that the forbearance agreement include an acknowledgement by the borrower and any guarantors that a default has occurred under the loan documents and that the lender agrees to refrain from exercising its rights and remedies for a specific period of time, provided that the borrower and any guarantor comply with the conditions set out in the loan modification or forbearance agreement. The forbearance agreement at a minimum should include the following provisions: recitals, admission of outstanding loan balance, debt service payments during the period of forbearance, forbearance period, conditions precedent to the effectiveness of the forbearance agreement, forbearance events of default and remedies, retroactive default interest from the date of the initial default, release of lender, waiver of bankruptcy stay, consent to appointment of a receiver and foreclosure, agreement not to contest foreclosure and reaffirmation of guaranty.
Enforcement Actions
The process for enforcing a loan through foreclosure varies across jurisdictions, so lenders should understand the unique process in their jurisdiction.
The loan documents may allow the lender to ask a court to appoint a receiver to take possession of and manage the property until the foreclosure is finalized and the property is sold through a foreclosure sale; provided, however, the applicable standard for the appointment of a receiver varies by jurisdiction. Lenders should also be aware that language in a loan document that allows a lender to “request” or “apply” for the appointment of a receiver does not necessarily entitle the lender to that appointment in most cases. Most states have recently adopted a model receivership law making it a bit easier to obtain a receiver in different venues around the country.
In light of the current interest rate environment, borrowers are getting more desperate to hold onto their current financing and will employ various delay tactics to prevent lenders from enforcing their rights. These types of defensive tactics can significantly increase the time and expense associated with enforcement of the loan.
Be Aware of Lender Liability
Throughout the workout and/or enforcement process, lenders should be aware of their exposure to potential lender liability claims. Borrowers may bring claims based on a lenders’ failure to honor its obligations under the loan documents, unreasonably delay, or lack of good faith. These claims will open lenders up to discovery, which can be time-consuming and expensive. Therefore, lenders should keep in mind that all non-privileged communications may be discoverable and keep all internal and external communication professional. Lenders should ensure that all discussions with the borrower and any guarantor are well documented and subject to confidentiality requirements set forth in the pre-negotiation letter agreement and/or forbearance agreement.
In conclusion, with loan defaults and workouts on the rise due to various challenges, lenders must act proactively to safeguard their interests. By taking measures now, lenders can enhance their readiness to navigate the challenges ahead, protecting both their assets and legal remedies. In the evolving financial landscape, foresight and preparedness are key to resilience.
—Meagen E. Leary and Phillip Hudson, attorneys with the firm, assisted in the preparation of this article.
Source: DBR
Law Firm Office-Leasing Activity Hit Milestone In 2023
The legal industry leased more office space last year than it has since the Covid-19 pandemic.
In 2023, U.S. law firms leased a collective 16.9 million square feet, according to Cushman & Wakefield. That’s not only more office space leased by the sector since the Covid-19 pandemic, but exceeds the amount leased nationally by law firms in 2017, 2018 and 2019, as tracked by Cushman.
The legal industry has bucked the broader trend of office-market leasing since the pandemic upended norms around office-space usage. While law firms, like other industries, have taken a hard look at their office real estate, they on the whole are using the office more regularly than other industries. Therefore, they’ve occupied a more robust segment of the leasing market while other industries have slowed their deal activity, put spaces on the sublease market or exited big chunks of space.
For those in commercial real estate who work with law firms on their office-space needs or otherwise track the industry, the legal sector’s recent leasing activity is indicative of its new normal.
Many law firms that saw their leases expire in 2020 or 2021 inked a short-term extension because of the uncertainty during the height of the pandemic. But in the past two years, law firms have gone back to the office more frequently and overall feel more confident making longer-term decisions about their space, said John McWilliams, senior research analyst at Cushman.
The biggest relocation signed by a law firm since the pandemic, according to Savills, was Paul, Weiss, Rifkind, Wharton & Garrison LLP’s deal inked late last year. The international law firm agreed to take 765,931 square feet at 1345 Avenue of the Americas in Manhattan. Not only was it the largest law office relocation since the pandemic, it was also the largest office lease signed across all industries and the U.S. last year.
What Law Firm Leasing Activity Says About The U.S. Office Market
Although it’s only one sector — and legal tenants only made up 8.8% of the national leasing market in 2023, according to Savills — how this industry is making office-space decisions is somewhat indicative of broader trends affecting the U.S. office market.
For example, like many professional-services tenants, law firms are largely seeking to be in the top 10% of office buildings in the markets they’re in, McWilliams said. Many law firms that have made leasing decisions in the past couple of years have departed office buildings that, while not necessarily Class B or C space, are no longer considered the top-tier towers in town.
Notably, a growing share of legal-industry tenants have decided to renew their leases in their current buildings rather than relocate, which may be indicative of the shrinking amount of top-tier office space available in a given market. That’s especially true of office tenants that require 100,000 square feet or more.
Data from Savills found, in 2023, 56% of leases signed within the legal sector were stay in place, compared to 33.9% in 2022.
And as office space at the high end of the office market is leased, and buildout construction costs are growing, a greater number of legal tenants are considering higher-quality sublease space on the market, experts say.
Source: SFBJ
A New Financing Risk Emerges
Goldman Sachs Group put together a mortgage-backed bond deal in 2021. Nothing unusual about that. The money went to a group purchasing 61 multifamily properties with a total of 1,719 rent-controlled units in San Francisco. The floating-rate, interest-only, first lien mortgage loan had an initial balance of $674.8 million.
By the end of 2022, the borrowers defaulted, as Mortgage Professional America noted. The loan was sold off at a deep discount, according to Bloomberg. Then came the rest of the bad news. Special servicer Midland Loan Services told the investors of a holdback of $164 million.
Holdbacks happen on occasion in CMBS financing, but this was big. As Bloomberg noted, it exposed multiple classes that had been rated as investment grade by Kroll Bond Rating Agency to potential loss and has raised fears among some investors that servicers will make surprise decisions that affect their returns in deals.
In February 2023, Fitch Ratings gave the overall package, GSMS 2021-RENT, a AAA investment-grade rating, with an explanation of key rating drivers.
The collapse of a highly-rated mortgage-backed bond might bring up memories of the Global Financial Crisis in which many bonds backed by residential mortgages with strong ratings were found to be less than what they appeared.
This has reportedly spooked Wall Street and investors. They already see a big downturn in markets, as GlobeSt.com has extensively reported. The prospect of special servicers holding back payments adds to the risk. Some of the investors in the deal reportedly were Angelo Gordon, LibreMax, and Lord Abbett.
He also said that there may have been a good explanation of the action, and that it was likely the biggest such action in that type of security.
Source: GlobeSt.
Stagflation Is a Real Possibility to These Analysts
A drumbeat for stagflation as a possible scenario for the US economy is growing louder.
Last week, strategists from the Bank of America wrote that the macroeconomic picture is “flipping from goldilocks to stagflation,” which they defined as growth below 2% and inflation of between 3% and 4%. Inflation is higher in developed and emerging markets, while the US labor market is “finally cracking,” wrote Michael Hartnett.
JPMorgan Chase’s Marko Kolanovic raised similar concerns in February. A halt in inflation’s downward trend, or price pressures broadly resurfacing “wouldn’t be a surprise” given outsized gains in equities, tight labor markets and high immigration and government spending, he said, according to Bloomberg.
Between 1967 to 1980, stock returns were nearly flat in nominal terms as inflation came in waves, with fixed-income investments significantly outperforming while stock returns were nearly flat in nominal terms. Kolanovic sees “many similarities to the current times.”
“We already had one wave of inflation, and questions started to appear whether a second wave can be avoided if policies and geopolitical developments stay on this course,” he said in his note, adding that inflation is likely to be harder to control as stock and cryptocurrency markets add trillions of dollars in paper wealth and quantitative tightening is offset by Treasury issuance.
Recent economic reports back up these analysts: The February Consumer Price Index came in at a higher-than-expected 3.2% year over year. Retail sales reported on Friday rose 0.6% from January to February, falling short of projections expecting 0.8% growth.
The Wall Street Journal highlighted these developments but ultimately dismissed the idea of stagflation taking hold in the US economy. So have the equity markets,
Barclays Plc strategist Emmanuel Cau wrote in a note that was reported in Bloomberg.
This week the Federal Open Market Committee will meet and the minutes it releases will show how Fed officials’ thinking changed from recent bad data on inflation.
One sign doesn’t bode well for Fed watchers hoping for rate cuts to happen sooner than later.
More than two-thirds of academic economists polled by the Financial Times believe that the Federal Reserve will be forced to hold interest rates at a high level for longer than markets and central bankers anticipate. Respondents to the FT-Chicago Booth poll think the Fed will make two or fewer cuts this year with the most popular response for the timing of the first cut split between July and September.
However, there is one viable theory for rates in June. Vincent Reinhart, a former Fed official who is now chief economist at Dreyfus and Mellon, told the FT that politics will play a role in the timing this year.
Source: GlobeSt.
Janet Yellen Says Rates Will Be Higher For Longer
It’s “unlikely” that market interest rates will return to levels before the pandemic, US Treasury Secretary Janet Yellen said to reporters yesterday in comments that were published by Bloomberg.
A reporter asked Yellen why the White House projections that were part of President Joe Biden’s $7.3 trillion fiscal 2025 budget proposal showed higher expectations for interest rates in coming years compared with projections a year ago. Yellen said the new numbers were in line with private sector forecasts.
The budget proposal now assumes that the rates on three-month US Treasury bills will average 5.1% this year, up from the 3.8% projected last March. The projection for the 10-year yield is now 4.4%, up from 3.6%.
Meanwhile, some economists are beginning to think that it will be a long time for the Fed to reach its goal of 2% inflation and that 3% will be the new normal.
Last week, the Labor Department reported that the Consumer Price Index grew 3.2%year over year.
Lara Rhame, chief U.S. economist at FS Investments, also believes that inflation will hover at 3% for the foreseeable future.
The Fed is “going to err on the side of caution in terms of cutting too quickly,” Rhame said to Axios.
Source: GlobeSt.
Powell: ‘There Will Be Bank Failures’ Caused By Commercial Real Estate Losses
Federal Reserve Chair Jerome Powell said Thursday he expects to see some banks fail due to their exposure to the commercial real estate sector, which has declined significantly in value following the shift to remote work.
Powell said the banks that are in trouble with falling office space and retail assets are not the big banks, which were designated as “systemically important” in the aftermath of the 2008 financial crisis. That episode, which resulted in a taxpayer bailout of the financial sector, was also triggered by unsound real estate assets.
Rather, the banks at risk of failure now Powell identified as smaller and medium-sized.
Powell didn’t go into detail about the specific regulatory actions regarding commercial real estate exposure that are now being undertaken by the Fed, which is both the federal currency issuer and one of the primary bank supervising agencies, though he did say he had identified the banks most at risk.
Commercial real estate investment trusts, known as REITs, have taken a hit over the past few months. Alexandria Real Estate Equities, Boston Properties, Kilroy Realty Corp., and Vornado Realty trust are all in negative territory since the beginning of the year.
Powell described the decline in value of commercial real estate as a result of remote work following the economic shutdowns of the pandemic as a “secular change” in the economy.
While the decline of commercial real estate values could put some banks out of business, Powell expressed confidence that the Fed and financial regulators would be able to contain the fallout and prevent a broader crisis. Thirty-four U.S. banks have failed since 2015, according to the Federal Deposit Insurance Corp. (FDIC), which insures deposits at regulated banks.
Source: The Hill
Ron Osborne Recognized As Sperry Commercial Global Affiliates Top Producer For 3rd Consecutive Year And Top Producing Office For The First Time
Ron Osborne, Managing Director/Broker of SperryCGA | RJ Realty, has been recognized as a Top Producer at Sperry Commercial Global Affiliates for the third consecutive year.
Each year, the firm bestows this esteemed accolade upon the top 10 brokers who achieve the highest grossing volume.
The firm, RJ Realty, was also recognized as a Top Producing Office in the Sperry network of 60+ offices. Mr. Osborne the Managing Director/Broker, attributes the honor to the hard work of his team.
The team is laser focused on clients’ needs and helping them achieve their goals. Most of RJ Realty’s clients have worked with Mr. Osborne for years and consider him and his team part of their advisory team. The RJ Realty team always puts the client’s needs first, from assisting them in financing a new acquisition, to helping them determine the right time to exit a property. Ron always advises his clients not to just buy for a return on the investment, but to also place location as just as important – sometimes even more than the current cap rate.
More CRE Debt Is Maturing This Year Than Estimated Earlier
The Mortgage Bankers Association has revised upward its estimate of debt maturing in 2024.
Because of the number of extensions and modifications that lenders have been granting borrowers in the past few years, the amount of CRE mortgages maturing this year is expected to increase from $659 billion to $929 billion.
This new estimate expands the universe of potential distress that could enter the market. At the same time, though, the increase in maturities this year could also have the unexpected consequence of generating more price transparency in the market. The uncertainty surrounding interest rates and questions about property values and fundamentals have led to fewer sales and financing transactions. However, the mortgages due to mature in 2024 and clarifications in other areas should help break up congestions in the markets.
The CRE loans maturing this year vary both by investor type and property type. For instance, just $28 billion, or 3 percent, of the outstanding balance of multifamily and healthcare mortgages either held or guaranteed by Fannie Mae, Freddie Mac, FHA, and Ginnie Mae will mature in 2024. In addition, life insurance companies will see $59 billion, 8 percent, of their outstanding mortgage balances mature in 2024. However, $441 billion, or 25 percent, of the outstanding balance of mortgages held by depositories; $234 billion, 31 percent, in CMBS, CLOs, or other ABS; and $168 billion, 36 percent, of the mortgages held by credit companies, in warehouse, or by other lenders, will mature this year.
In terms of property type, 12 percent of mortgages backed by multifamily properties will mature in 2024. Also, 17 percent of mortgages backed by retail and 18 percent backed by healthcare properties will mature this year. In addition, 25 percent of loans backed by office properties will come due in 2024. Finally, 27 percent of industrial loans and 38 percent of hotel/motel loans will mature this year, as well.
Source: GlobeSt.
Navigating The Surge: A Strategic Guide For Lenders Amid Rising Loan Defaults
By Jay Steinman and Karina Leiter
Jay Steinman, left, and Karina Leiter, right, of Duane Morris. Courtesy photos.
Loan defaults and workouts are on the rise again due to a confluence of factors causing headwinds including: the surge in interest rates and real estate owners inability to refinance maturing loans at affordable rates; the continued rise in the cost of certain materials needed for renovation and construction; the staggering cost of flood and windstorm coverage and the impossibility of even obtaining coverage; and the loan maturing in the near future without satisfactory options to refinance or be otherwise paid off on time.
Anticipating the fallout from potentially billions of dollars in distressed loans, lenders must be on high alert. Drawing from lessons learned in the last two historical downturns, where we witnessed unprepared lenders face severe consequences, it is imperative for lenders and financial institutions to act now.
Identifying distressed borrowers and projects is a critical first step, acknowledging the inevitability that many loans are already or may default in the near future. By taking proactive measures now, lenders can not only brace for the storm but also enhance and protect their available legal remedies in the event of a borrower’s default.
The subsequent steps outlined in this article offer a strategic guide for lenders, empowering them to navigate the complexities of loan workouts and enforcement actions with resilience and foresight.
Nonwaiver Letter
If a default has occurred the lender may want to have counsel draft a form of reservation of rights or nonwaiver letter. The letter should identify the known breaches and should also include “nonwaiver” type language which generally states that notwithstanding the breach or default the lender is reserving all rights under the loan documents and is not waiving any right or remedy thereafter even though it may be taking no action at that time to enforce its remedies.
Review Loan Documents
Before discussing a potential loan workout with a borrower or proceeding to exercise the remedies available, lenders should first evaluate their legal position, which includes conducting a thorough review of all loan documents including all organizational documents, title insurance policies, surveys and other due diligence materials received at closing and thereafter. Taking inventory of all collateral is also important if possible. A careful review of the loan file should be conducted to identify any documents and correspondence that may adversely impact enforcement of remedies. You don’t want to go to war with defective loan documents or due diligence issues that should have been addressed before the loan closed or thereafter.
We recommend that a new pair of eyes go through all relevant documents. Unfortunately, it is human nature that the counsel who handled the loan previously may have missed or overlooked something that will become critical during the workout, foreclosure or REO sale thereafter. Further, lenders should consider whether there are any technical issues with the loan documents and loan structure that could complicate enforcement.
Lenders should pay particular attention to what constitutes an “event of default” under the loan documents, keeping in mind the borrower’s financial and non-financial covenants, as well as the remedies available to both parties when an event of default occurs, including, without limitation, any required notices and applicable cure periods.
Perform Updated Diligence
After the lender and its counsel have reviewed the loan documents and defects if any have been identified, it is also prudent to conduct an updated review of diligence items with respect to the collateral which secures its loan, the borrower and any guarantors, including, without limitation, updated searches, title, review of financial information with respect to the property, borrower and any guarantor and current organizational documents. The lender may also want to obtain an updated appraisal and environmental audit.
By performing loan document review and analysis and the updated diligence, the lender will better understand its position and leverage before entering into negotiations with the borrower. Any existing liens or other title defects may complicate any foreclosure sale and further slowdown enforcement, which is already a lengthy process.
Execute a Pre-Negotiation Letter
Before beginning any substantive discussions with a borrower regarding a loan modification or forbearance agreement, we recommend that the lender require that the borrow and any guarantor execute a pre-negotiation letter agreement. A pre-negotiation letter agreement sets forth the parameters of the negotiations between borrower and lender prior to memorializing such negotiations in any written document. We recommend that the pre-negotiation letter agreement include a requirement that the borrower and any guarantors provide certain updated due diligence information described above to the extent that the lender’s file does not include this information.
Workout Negotiations
To the extent that a lender elects to withhold from enforcing its rights under the loan documents as a result of a borrower or lender default, the parties should enter into a loan modification or forbearance agreement. Generally speaking, it is best practice that the forbearance agreement include an acknowledgement by the borrower and any guarantors that a default has occurred under the loan documents and that the lender agrees to refrain from exercising its rights and remedies for a specific period of time, provided that the borrower and any guarantor comply with the conditions set out in the loan modification or forbearance agreement. The forbearance agreement at a minimum should include the following provisions: recitals, admission of outstanding loan balance, debt service payments during the period of forbearance, forbearance period, conditions precedent to the effectiveness of the forbearance agreement, forbearance events of default and remedies, retroactive default interest from the date of the initial default, release of lender, waiver of bankruptcy stay, consent to appointment of a receiver and foreclosure, agreement not to contest foreclosure and reaffirmation of guaranty.
Enforcement Actions
The process for enforcing a loan through foreclosure varies across jurisdictions, so lenders should understand the unique process in their jurisdiction.
The loan documents may allow the lender to ask a court to appoint a receiver to take possession of and manage the property until the foreclosure is finalized and the property is sold through a foreclosure sale; provided, however, the applicable standard for the appointment of a receiver varies by jurisdiction. Lenders should also be aware that language in a loan document that allows a lender to “request” or “apply” for the appointment of a receiver does not necessarily entitle the lender to that appointment in most cases. Most states have recently adopted a model receivership law making it a bit easier to obtain a receiver in different venues around the country.
In light of the current interest rate environment, borrowers are getting more desperate to hold onto their current financing and will employ various delay tactics to prevent lenders from enforcing their rights. These types of defensive tactics can significantly increase the time and expense associated with enforcement of the loan.
Be Aware of Lender Liability
Throughout the workout and/or enforcement process, lenders should be aware of their exposure to potential lender liability claims. Borrowers may bring claims based on a lenders’ failure to honor its obligations under the loan documents, unreasonably delay, or lack of good faith. These claims will open lenders up to discovery, which can be time-consuming and expensive. Therefore, lenders should keep in mind that all non-privileged communications may be discoverable and keep all internal and external communication professional. Lenders should ensure that all discussions with the borrower and any guarantor are well documented and subject to confidentiality requirements set forth in the pre-negotiation letter agreement and/or forbearance agreement.
In conclusion, with loan defaults and workouts on the rise due to various challenges, lenders must act proactively to safeguard their interests. By taking measures now, lenders can enhance their readiness to navigate the challenges ahead, protecting both their assets and legal remedies. In the evolving financial landscape, foresight and preparedness are key to resilience.
—Meagen E. Leary and Phillip Hudson, attorneys with the firm, assisted in the preparation of this article.
Source: DBR
Banks Expecting More Tightening On CRE Standards
The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) regularly checks with banks to better understand their lending landscape. The short take for commercial real estate from the most recent survey is that even tighter underwriting standards can be expected in the future.
And while easing interest rates are eventually expected to support relatively low demand from borrowers, that is unlikely to happen until May or June.
The net percent of respondents that are tightening standards for CRE loans is a little shy of the 2020 pandemic peak and still near the 2009 apex of the Global Financial Crisis. Also, the net percent of domestic respondents reporting stronger demand for CRE loans is even worse than the depths after the GFC.
Dave Sloan, a senior economist at Continuum Economics, told Reuters that the results are “unlikely to generate any urgency for easing.” Banks expect demand for loans to increase as interest rates fall, but with signaling from the Fed, this is unlikely to happen until May or June at the earliest.
More colloquially, at issue is fear on the part of banks, still around since the closuresof Signature Bank, Silicon Valley Bank, and First Republic Bank in the early part of 2023. Roughly a week after shares of New York City Bancorp — which bought most of the assets of Signature, including its CRE loan portfolio — started plummeting, they’re still in freefall. Shares went from about $10.30 or so to $4.20 at the close of Feb. 6, a drop of almost 60%.
The problems facing New York Community were more than Signature. A New York co-op loan that wasn’t in default nevertheless is now up from sale because of “a unique feature that pre-funded capital expenditures.” There was also an “additional charge-off on an office loan that went non-accrual during the third quarter, based on an updated valuation.” But they were all related to commercial real estate. And what rattles one bank rattles many more.
Source: GlobeSt.
Bracing For The Commercial Real Estate ‘Reckoning’
MATURITY WALL OF WORRY
Source: Reuters