{"id":6205,"date":"2023-10-28T00:54:12","date_gmt":"2023-10-28T00:54:12","guid":{"rendered":"https:\/\/infundpros.com\/investment\/more-office-zombies-only-11-of-maturing-loans-repay-in-september-moodys-analytics-says\/"},"modified":"2023-10-28T00:54:13","modified_gmt":"2023-10-28T00:54:13","slug":"more-office-zombies-only-11-of-maturing-loans-repay-in-september-moodys-analytics-says","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=6205","title":{"rendered":"More office zombies? Only 11% of maturing loans repay in September, Moody\u2019s Analytics says"},"content":{"rendered":"
\n

New financing for old office loans that Wall Street packed into bond deals years ago has been getting more scarce, according to Moody\u2019s Analytics.<\/p>\n

It\u2019s another troubling sign for commercial property markets, with only 11.1% of office loans out of a near $755 million pile of maturing debt repaying in September, when looking at landlords with Wall Street funding from the commercial mortgage-backed securities market. <\/p>\n

\n

Landlords typically rely on the sector to keep refinancing their debt, rather than repaying all of what they owe. Building owners aim to earn a return while staying current. But if they can\u2019t refinance, defaults typically rise, sparking the kind of fire sales hitting San Francisco and other big cities, which potentially can spur more borrowers to surrender buildings to their lenders instead of standing by struggling properties. <\/p>\n

\u201cSeptember did have a slightly higher payoff rate than July or August,\u201d said Matt Reidy, director of commercial real estate economics at Moody\u2019s Analytics, in an email to MarketWatch. But he also said loan repayments in recent months \u201cwere very, very low.\u201d<\/p>\n

Payoff rates have been grim for months, with many landlords instead relying on loan extensions or modifications to stay current as higher interest rates and falling values erode the chance of buildings refinancing. Office availability rates in the U.S. also have surged to 24.4%, up more than 1,000 basis points since pre-pandemic levels, according to Savills Research.<\/p>\n

\u201cThey are still an indication of how incredibly difficult it currently is for office loans to pay off,\u201d Reidy said. Extensions, however, last only so long, likely adding to the huge 89% share of loans in September that hit a maturity default (dark-blue line).<\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n
<\/div>\n<\/figure><\/div>\n

Goldman Sachs said in its third-quarter earnings call that it marked down or impaired its office real-estate investments by 50% this year.<\/p>\n

Federal Reserve officials in recent months have been warning that the central bank\u2019s policy interest rate will probably need to stay higher for longer to ensure that inflation keeps falling toward its 2% annual target. The Fed\u2019s short-term rate was increased to a 22-year high of 5.25%-5.5% in July, a level it is expected to stick to following next week\u2019s policy meeting, but while leaving the door open to more rate hikes.<\/p>\n

Wall Street bond deals have been a key, but smaller, source of funding for the estimated $21 trillion U.S. commercial real-estate market than financing for banks in the past decade. Fallout has been hitting banks since the Fed began to rapidly raise interest rates to fight inflation.<\/p>\n

See<\/strong>: \u2018Banks fail. It\u2019s OK,\u2019 says former FDIC chair Sheila Bair.<\/p>\n

With rates expected to stay high in 2024, more landlords could fail to secure financing, particularly with remote work continuing to darken the door of office properties. <\/p>\n

Looking at the full year, Moody\u2019s Analytics found that 34.7% of maturing office loans in bond deals have been modified or extended so far, while another 34.1% hit a maturity default and 31.2% were paid off.<\/p>\n

The autumn surge in the 10-year Treasury yield
\n BX:TMUBMUSD10Y
\n to nearly 5% has further dampened the outlook, since the rate serves as a peg for new property loans and an overall gauge of financing conditions for the U.S. economy.<\/p>\n

Deutsche Bank analysts pointed to \u201cvery weak\u201d borrower demand for 10-year commercial property loans from Wall Street\u2019s bond-market machine with rates now in the 7.5%-8% range, in a weekly client note.<\/p>\n

They also estimate that commercial-real estate transaction volume has fallen to \u201cseverely depressed\u201d levels last seen in 2009.<\/p>\n

Stocks were trading lower on Thursday, with the Dow Jones Industrial Average
\n DJIA
\n off 0.7%, the S&P 500 index
\n SPX
\n 1.3% lower and the Nasdaq Composite Index
\n COMP
\n off 2.1%, according to FactSet. <\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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