Commercial property worth billions in US in distress
At least $107 billion worth of income generating commercial property in the US is already in distress or heading that way, according to analysts.
This includes prestigious buildings, hotels, offices, apartment blocks and warehouses across the US but New York has more than any other city.
Data from research company Real Capital Analytics shows that the Skip to next paragraphowners of the building at 450 West 33rd Street in Manhattan, whose tenants include The Daily News, have to repay $1.2 billion in debt by the spring.
Another prestigious building at 660 Madison Avenue is listed as potentially troubled in the Real Capital Analytics report.
The distress is occurring all across the country, but New York tops the list because of the number of costly high-profile transactions that occurred during the boom years. Real Capital Analytics' list includes a total of 268 properties in the New York area, with a value of $12 billion, as already or potentially in trouble.
'It is greater than most of us expected and the size of the problem that is potentially out there is much greater than we thought,' said Robert M. White Jr, the president of Real Capital Analytics.
Many of the difficulties did not become apparent until mid-September, when the financial world suffered a series of jolts, including the collapse of Lehman Brothers.
It is the first time that such comprehensive data has been compiled. It includes loan defaults connected with commercial mortgage-backed securities, condominium construction loans, bank loans that were not securitized and debt issued by insurance companies and so-called mezzanine lenders, which hold junior debt positions.
The report indicates that more than 1,000 properties are clearly in trouble. Owners of about 200 properties have surrendered the keys to their lenders. Another $21.2 billion worth of buildings are categorized as troubled based on one or more of the following criteria: foreclosure proceedings have been started, the property owner has received a notice of default, a receiver has been appointed, or the landlord or sole tenant has filed for bankruptcy protection.
Heading towards distress are more than 3,700 properties, valued at $80.9 billion, Real Capital Analytics said. This includes $40 billion worth of properties whose owners are suffering financially. It also covers $26 billion worth of buildings with loans maturing next year, when credit is expected to remain tight and borrowers will probably be unable to refinance their properties unless they accept much more onerous terms.
White said he expected values to decline by 25 to 30% when owners who have been holding out are actually forced to sell.
He added that even his estimate of $107 billion in actual and potential distress did not tell the whole story. Real Capital Analytics also calculated that another $84 billion worth of developments have been abandoned or stalled.