Lenders Slow to Sift Through Distressed Commercial Loans: Real Capital

Mon, May 3, 2010


Only 10 percent of the $41 billion of distressed commercial real estate from a year ago has been resolved and is no longer held by the lender, according to data released this week by the research firm Real Capital Analytics.

The company’s analysis includes only seasoned distress for which sufficient time has passed for lenders and borrowers to facilitate workouts.

The findings show that the majority of distressed commercial real estate loans held by commercial-mortgage backed securities (CMBS) trusts and domestic lenders this time last year are still classified as distressed.

Both CMBS trusts and U.S. banks have resolved a comparably small portion of their distress from a year ago. For securities trusts, this resolution most often takes the form of a loan restructuring, Real Capital said. Distressed loans held by domestic lenders are more likely to have been foreclosed.

The company’s analysts say insurance companies are working through their distressed loans more quickly than any other lender group, but they also had the lowest volume of distress to sort out.

Comparatively speaking, Real Capital reports international banks have made greater progress in addressing their distress than U.S. banks.
Turning from seasoned to more recent cases of distress, Real Capital says that new reports of commercial properties falling into default, foreclosure, or bankruptcy during March 2010 totaled $7.5 billion, up slightly from the month before and in line with figures from a year ago.

While distress continues to pile up, the research firm says the nature of newly troubled situations has changed over the past year, as property level defaults dominate and corporate level distress recedes amid increasing restructurings and resolutions.

Real Capital says in that vein, the net increase in outstanding distress for March was $4.8 billion, reflecting $1.6 billion in restructurings and over $1.0 billion in liquidations, across all property types.

In March, $3.2 billion of newly troubled office properties entered into distress, according to Real Capital’s market research, raising the amount of outstanding distress in this sector to $32.0 billion. That’s 225 percent higher than one year earlier.

In the apartment/multifamily sector, $963 million entered the distress pool in March, pushing the total volume of troubled apartment loans to just over $32.9 billion, the firm’s study showed.

Close to $1.6 billion of newly troubled retail properties in the month of March brought the volume of distressed retail to nearly $26 billion.

Among industrial properties, $681 million fell into distress in March, bringing the total of outstanding distress in the sector to $7.1 billion, including troubled and REO properties. REO properties accounted for $43 million of the new trouble, Real Capital found.

Distress in the hotel sector has hit $31.8 billion, after $701.8 million in hotel mortgages turned bad in March. Real Capital says it’s 373 percent higher than 12 months ago. The firm attributes nearly half of the net new hotel distress volume to just one property – the Sawgrass Marriott Resort & Spa in Ponte Vedra, Florida, which declared bankruptcy after the investors were unable to service $193 million in debt from Goldman Sachs

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