More than $10B in value has been wiped among commercial properties facing distress
By Ashley Fahey
Tampa Bay Business Journal
Published: Jan 19, 2023

More than $10 billion in commercial property values have been wiped out among a sampling analyzed by The Business Journals of hundreds of commercial properties facing distress since Covid-19. The data shows fallout from the pandemic on the commercial real estate sector remains, for specific property types, in free fall.

The Business Journals' analysis found $10.3 billion in commercial property value has disappeared among 599 loans on properties nationally facing some amount of distress. Valuation losses are likely much larger when accounting for properties that don't secure debt in commercial-mortgage backed securities loan portfolios.

Distress, as evaluated in this analysis, includes properties flagged by loan servicers as being either at least 30 days delinquent on loan payments or that are in some stage of foreclosure. The data was sourced from Bloomberg and includes financial filings as of Jan. 17.

Two dozen loans saw valuation losses in excess of $100 million since issuance, and nine of those properties are real estate owned, or REO, which refers to a property owned by a lender after an unsuccessful foreclosure auction. The 610-room JW Marriott Chicago hotel is one such example, with lender Wells Fargo & Co. (NYSE: WFC) having taken control of that property with a bid of nearly $251 million during a foreclosure auction last summer, according to the Chicago Tribune.

In total, Chicago had 36 loans associated with a commercial property facing distress with a valuation loss, according to the data — the second most of any city — followed by Houston, with 32. New York had the most, at 52.

When a property is facing a specific amount of distress, an appraisal will be ordered so the lender can more accurately substantiate a property's value. Tracking reappraised property values among commercial properties flagged by loan servicers is one way to see which properties, sectors and geographies are struggling to recover in the wake of the pandemic.

Although travel and retail have both rebounded since the pandemic, 194 of the 599 deals that've been reappraised since the pandemic with a valuation loss are associated with retail properties, while 177 limited- and full-service hotels are on the list. Eighty-nine loans backed by office properties facing distress have seen their valuations shaved, for a net loss of nearly $1.9 billion.

The CMBS properties backed by retail real estate in distress have seen a net value loss of $4.7 billion while loans backed by hotels included on the list have seen about $2.5 billion in collective loss.

LLC's CMBS overall delinquency rate was 3.04% in December, the third consecutive month of increases and the first time it surpassed 3% since July 2022. Retail continues to have the highest delinquency rate, at 6.97% in December, followed by hotels (4.4%), multifamily (2.17%), office (1.58%) and industrial (0.42%).

Moody's Analytics recently found $17 billion in mortgage bonds backed by office buildings are coming due this year. That's a significant uptick from 2021 ($4 billion) and 2022 ($7 billion), and comes at a time when companies are shedding office space to reduce costs and tenant demand remains weak.