Get In Line Now — And Line Up More Money — To Refinance Maturing Office Loans, Lenders Say

As the wave of loans coming due on commercial real estate assets in NYC is beginning to crest, and with property values on the decline, lenders have a message for borrowers: Act fast.

“Time is not your friend — in the sense of the world's illiquid today, not to be doom and gloom,” Jason Hernandez, Nuveen Real Estate’s head of real estate debt for the Americas, said at Bisnow’s New York Future Forum Tuesday. “And it's going to be as illiquid, or more illiquid, 30 to 60 days from now.”

Approximately 30% more CMBS loans in NYC are due to mature in 2023 than last year, a combined value of $16B altogether, according to Trepp. Now is the time to act for owners whose deadlines are bearing down on them, lenders said on stage at Hudson Square Properties’ Tribeca 360 building.

“If you're a borrower, and you want to work with your lender — and trust me, your lenders want to work with you on office loans — you have to show conviction by putting money into the system,” Square Mile Managing Director Samir Tejpaul said.

The sums coming due in the city include RFR’s Seagram Building, which has a $783M loan maturing in May, and a $485M loan on Tishman Speyer’s 300 Park Ave., which is due in August. Tejpaul said it is going to be difficult to approach lenders for borrowers who have already had to find workarounds with their lenders during the pandemic, but that makes it even more important to approach them sooner rather than later.

“I think more lenders are going to be accommodating, because at this point in time, potentially there's a 50% devaluation in the asset class,” he said. “So we're all incentivized to try and find you more time to work through the situation.”

At the same time, borrowers should come to lenders prepared to offer compromises or solutions, said Sebastian Post, Lionheart Strategic Management’s managing director and co-head of investments.

“We don't want the keys back on any of our deals. It's challenging. You're going to require a paydown, maybe there’s another business plan, maybe there's not,” he said, adding that some lenders will force borrowers to sell properties in order to satisfy the loans. “But that’s where we’re coming to in the next three or four months.”

Although financing conditions seem poised for properties to get stuck in a debt limbo, some borrowers are already starting to approach lenders to refinance. Earlier this week, German lender Aareal Capital Corp. agreed to a $260M loan replacing its $235M debt package for landlord Wharton Properties’ 724 Fifth Ave. office tower five years ago. 

But for workarounds and new loans, lenders aren’t the only entities that need convincing, KKR Managing Director for Real Estate Paul Fine said at Bisnow’s event. 

“There's a real distinction between a hotel deal and an office deal right now,” Fine said. "I don't know that any of us have ever seen an asset class become effectively un-investable overnight."

Some players see that as an opportunity in waiting. Hines East Region CEO Sarah Hawkins, who recently oversaw a shake-up of city leaders reporting to her, said on stage that the Houston real estate giant is getting ready for "more distress in the office market."

It is looking at which of its own older properties are suitable for conversions or repositioning, but also grappling with ongoing demand for trophy buildings — some Manhattan towers are commanding rents approaching $200 per SF, even as overall demand is softer.

“We are huge believers in office, and we believe that there's going to be more demand than there is supply for the highest quality, trophy, amenitized buildings that could be either a repositioning or a new development, that lenders are not willing to finance that today,” Hawkins said. “So that needs to change. It’s exceedingly challenging to get both equity and debt financing for anything that touches office.”

Fine acknowledged that the distress in the market opens up possibility for huge returns — but taking that leap requires financial courage.

"Office is a very scary word right now," Fine said. "People are generally not touching office across the board. And I think a lot of people will make money in office investing in this period of time right now because of that, but I think a lot of people also lose a lot of money in office before a lot of that happens.”