Some of the largest real estate investors are walking away from debt on bad property deals, even as they raise billions of dollars for new opportunities borne of the pandemic. The willingness of Brookfield, Starwood Capital, Colony Capital, and Blackstone Group to skip payments on commercial mortgage-backed securities backed by hotels and malls illustrates how the economic fallout from the coronavirus has devalued some real estate while also creating new targets for these cash-loaded investors, according to Bloomberg News.
- Worth Noting: Hotels and malls have been the biggest CMBS losers during the pandemic. Lodging and retail debt turned over to so-called special servicers — workout specialists — is at the highest level since 2010.
- Be Smart: Missing payments on CMBS debt is relatively painless, because it’s typically non-recourse, meaning borrowers can hand over the keys to a property and lenders won’t be able to come after other assets. Property owners are more likely to walk away when their equity has been wiped out by lower values.
- Sales volume plummets: Commercial real estate deals have been in a deep freeze as lenders give borrowers slack to defer payments and landlords are reluctant to drop asking prices. That may change in the next few months as debts mount and the outlook dims for retail, hotel, office and even apartment properties that already suffered from oversupply before the pandemic hammered the U.S. economy. Transaction volume slipped year-over-year in July to $14 billion across all sectors, down 69% from July 2019. [Bloomberg+Bloomberg2]