Mortgage mess on commercial properties could last 5-7 years, real estate veteran says


Wit Solberg founded Mission Peak Capital in 2008 to recover messed up commercial real estate assets after the last major crisis.

A dozen years later, he’s trying to unravel another kind of real estate mess, but this time on behalf of the other.

As the pandemic has changed the way we work, shop and gather together, Solberg has invested in European lending service Mount Street Group to help borrowers and international US commercial real estate stakeholders determine, for a fee cool, where they could stand as buildings begin to reopen.

“What I think will happen,” said Solberg, is that COVID will make the already complex discussions between home borrowers and lenders “more complicated over the next five to seven years.”

“We don’t know where people are going to be in the offices. We don’t know what the malls are going to do, ”he told MarketWatch, adding that“ hotels are complicated ”and it’s still unclear when the big convention centers will fill up again. “That’s why we bought this company.

Lily: Lockdowns loosen in New York and other major cities, but commercial real estate remains tied

Mound Street oversees roughly $ 12 billion in assets in the United States, but closer to $ 95 billion globally, with a focus on debt investments. Prior to 2008, Solberg was head of Deutsche Bank’s commercial real estate debt syndication office in Asia.

Now, Solberg is looking to capitalize on his overseas experiences in his new venture, especially after the global hunt for yield in recent years has seen Asian and international investors flock to riskier commercial real estate investments, including sure New York City Buildings Trophy, since swept away by the pandemic.

“Korean investors have been devastated and are the most aggrieved party in the United States during COVID,” Solberg told MarketWatch. “And that’s because they don’t know what they got themselves into and they don’t have any service providers to help them.”

This graph breaks down by asset class the nearly $ 20 billion in commercial real estate loans in the United States under “led” mortgage bond deals that have accumulated in “special services” since the pandemic. forced businesses to close for the first time in March 2020.

Increase in special loans

KBRA, Trepp

The chart does not include large loans or unique trophy properties funded by stand-alone bond transactions. But it does provide a glimpse of the potential distress to come in American commercial properties.

Unlike loans held by banks, homeowners funded in the $ 600 billion Commercial Mortgage Backed Securities (CMBS) market have their monthly mortgage payments or debt relief requests processed by mortgage agents. service, working on behalf of bondholders to maximize their returns.

As Solberg said, the loan department “is the engine that makes it all work.”

While not all special duty loans have missed monthly payments, this often signals a higher risk of default. However, debt relief talks can often begin in earnest once a loan is transferred to a special department, where discussions of forbearance, interest rate cuts, foreclosures, or others. measurements take place.

Special services often receive a fee of 0.25% per annum based on the loan balance, for each month they oversee a loan, depending on the loan Coaching Specialist Ann Hambly, who wrote a blog post in January on arrears in special services due to COVID. Some providers also offer packages.

Solberg said his company will offer a “tailor-made” service, where they will look at each situation and provide a quote based on a plan to resolve the issue.

These plans could become clearer as New York City strives to fully reopen bars, restaurants, theaters, sports arenas and more by July 1, as COVID-19 cases decline and vaccination rates are increasing.

See: Bond traders betting on hotels or shopping centers now have Big Data

Commercial real estate has lagged behind the recovery seen in other assets, with office towers, hotels and shopping centers in many key U.S. cities only recently tabling plans to cancel occupation restrictions, some 14 months after many office workers were sent home as the COVID-19 crisis began to erupt.

Stocks were under pressure on Friday, but a day earlier the S&P 500 SPX index,
-0.05%
closed at a new high, while the benchmark 10-year Treasury yield TMUBMUSD10Y,
1.597%,
a key benchmark for new commercial real estate loans, edged down to around 1.63%.

“I know everyone in the world who has money to spend, to invest, has to invest in dollars,” Solberg said, adding that “one of the easiest places to invest a lot of money” in recent years has been the real American commercial. –real estate assets.

“It’s a scarier business now to understand than it was two years ago. “


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