{"id":2975,"date":"2023-06-05T15:30:32","date_gmt":"2023-06-05T13:30:32","guid":{"rendered":"https:\/\/www.dhcab.com\/?p=2975"},"modified":"2023-06-05T15:30:32","modified_gmt":"2023-06-05T13:30:32","slug":"us-banks-prepare-for-losses-in-rush-for-commercial-property-exit","status":"publish","type":"post","link":"https:\/\/www.dhcab.com\/?p=2975","title":{"rendered":"US banks prepare for losses in rush for commercial property exit"},"content":{"rendered":"
\n
\n
“Lenders prepare to offload debt at a discount even when borrowers are up to date on payments”<\/p>\n

Some US banks are preparing to sell off property loans at a discount even when borrowers are up to date on repayments, a sign of their determination to reduce exposure to the teetering commercial real estate market. The willingness of some lenders to take losses on so-called performing real estate loans follows multiple warnings that the asset class is the \u201cnext shoe to drop\u201d after the recent turmoil in the US regional banking industry. \u201cThe fact that banks want to sell loans is coming up in a lot of conversations,\u201d said Chad Littell, an analyst at CoStar, a research company focused on commercial real estate. \u201cI am hearing more about it than any time in the past decade.\u201d HSBC USA is in the process of selling off hundreds of millions of dollars of commercial real estate loans, potentially at a discount, as part of an effort to wind down direct lending to US property developers, according to three people familiar with the matter. Meanwhile, PacWest last month sold $2.6bn of construction loans at a loss. And a clutch of other banks are making it easier to execute similar sales in the future by changing the way they account for commercial real estate debt. Typically, banks are reluctant to accept losses on big blocks of loans that will retain their full value as long as borrowers make repayments on time. But some are being convinced to take the plunge amid fears of an increase in delinquencies \u2014 especially on debt secured against office properties that have experienced falling demand due to the enduring popularity of working from home. Meanwhile, a slowdown in demand for commercial mortgage-backed securities has left banks of all sizes holding on to more property debt than they or regulators would like. While the practice of offloading performing loans is not as prevalent as it was during the 2008 crisis, many market participants expect the volume of deals to increase this year and next. As banks prepare to close the second quarter \u201cthey are super focused on keeping a clean loan book\u201d, said David Aviram, a principal at Maverick Real Estate Partners, a private fund that specialises in commercial real estate loans. \u201cThe banks don\u2019t want to raise the concerns of regulators or investors.\u201d The moves by banks to offload the loans come as executives and regulators raise alarm bells over the health of the commercial real estate sector. Wells Fargo chief executive Charlie Scharf last week told analysts and investors that the bank, which has $142bn in commercial real estate loans outstanding, is managing its exposure to the area. \u201cWe will see losses, no question about it,\u201d said Scharf. Meanwhile, Martin Gruenberg, chair of the US Federal Deposit Insurance Corporation, last week warned that real estate loans \u2014 especially those backed by offices \u2014 face challenges if demand remains weak and \u201cvalues continue to soften\u201d. \u201cThese will be matters of ongoing supervisory attention by the FDIC,\u201d he added. Other banks are changing the way they account for loans by switching their designation to \u201cavailable for sale\u201d from \u201chold to maturity\u201d, a move that makes it easier to offload the debt down the line. Citizens, which has been reducing its commercial property lending, more than doubled its stock of loans available for sale to $1.8bn during the first quarter. Like many other banks, it does not disclose what percentage of those loans are to commercial real estate borrowers. Customers Bancorp, based in suburban Philadelphia, cut its commercial real estate lending by nearly $25mn in the first quarter. It also recategorised $16mn of these loans as \u201cheld for sale\u201d, up from zero in the previous quarter. One loan broker said it was preparing to bring several deals to market in the coming weeks and was experiencing the largest amount of activity in three years. The discounts applied to sales of performing loans outside of the office sector remain relatively modest and are driven partly by interest rate rises. Real estate investment group Kennedy-Wilson, for instance, agreed to pay $2.4bn, or 92 cents on the dollar, for the block of PacWest loans that had an aggregate principal value of $2.6bn. Shares of PacWest surged nearly 20 per cent after it announced the transaction. \u201cWe\u2019re getting more calls\u2009.\u2009.\u2009.\u2009as a result of what PacWest was able to execute with Kennedy-Wilson,\u201d one real estate credit investor said. \u201cAll the regional banks are looking at that stock price and saying \u2018the market really liked that and we should execute something similar\u2019.\u201d According to two of the people briefed on the HSBC sales process, the loans are fetching bids that would price the loans in the mid-90s as a percentage of their face value \u2014 meaning the bank would have to take a loss of as much as 5 per cent. HSBC has not decided whether it is willing take a loss on the sale or how large one might be, according to another person familiar with the process. HSBC declined to comment.<\/p><\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

“Lenders prepare to offload debt at a discount even when borrowers are up to date on payments” Some US banks are preparing to sell off property loans at a discount even when borrowers are up to date on repayments, a sign of their determination to reduce exposure to the teetering commercial real estate market. The […]<\/p>\n","protected":false},"author":1,"featured_media":2976,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25],"tags":[],"class_list":["post-2975","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-global-issues"],"_links":{"self":[{"href":"https:\/\/www.dhcab.com\/index.php?rest_route=\/wp\/v2\/posts\/2975","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.dhcab.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.dhcab.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.dhcab.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.dhcab.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2975"}],"version-history":[{"count":0,"href":"https:\/\/www.dhcab.com\/index.php?rest_route=\/wp\/v2\/posts\/2975\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.dhcab.com\/index.php?rest_route=\/wp\/v2\/media\/2976"}],"wp:attachment":[{"href":"https:\/\/www.dhcab.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2975"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.dhcab.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2975"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.dhcab.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2975"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}