There is a renewed sense of confidence in our industry as we see an uptick in leasing and tenant growth, and a decrease in the number of troubled assets.
A recent article noted that for the first time since this crisis began, banks originated more new loans than were either paid off or liquidated. As a result, the amount of non-performing loans, as compared to the balance of the banks’ increasing portfolios, has continued to decrease. Furthermore, U.S. commercial-mortgage-backed-securities delinquencies fell to 7.18 percent in June, the lowest in over three years according to Fitch Ratings.
The industry’s overall stabilization (and growth) also means a dramatic slowdown in the number of properties in receivership as more properties continue to get worked out by lenders and borrowers.
There is still $130 billion that will need to be refinanced by 2017, but borrowers will likely have more alternatives. If current trends continue, the properties in question might be fully leased and operating effectively in three years. Also, if the volume of troubled assets decreases dramatically, then special servicers will have more time to work with lenders and borrowers through the process.
In certain situations borrowers seem to be using bankruptcy to effectively reorganize or delay the foreclosure process. The process can be a viable alternative, allowing for more time to negotiate leases and find alternative funding. We’re also seeing an increased amount of joint venture partnerships, buy-outs and even capital investments for improvement.
One of my most recent receivership assignments serves as a great example. A local neighborhood shopping center, positioned within an established neighborhood with strong demographics, was placed in receivership just six months ago. The center suffered from 39% vacancy and an anchor tenant in default. Just a short amount of time allowed Coreland’s brokerage team to secure significant interest in the anchor vacancy, helping to solidify the investor’s decision to recapitalize the property. The borrower secured additional investment and paid off the loan – a very unique outcome, but indicative of the changing market.
To further illustrate the transition taking place, we are seeing a number of asset managers shifting priorities and moving back into loan origination from loan servicing. Special servicers are also downsizing as they liquidate their portfolios.
The slowdown of receivership properties was quick in the 90s, and it will be no different coming out of this cycle. However, we expect the shift in our business to be offset by renewed investment in commercial real estate. We look forward to seeing an increase in development and acquisition, resulting in enhanced leasing activity and management opportunities.