While many downtown office landlords and lenders see a dilemma, David Rubenstrin, co-chairman of The Carlyle Group, sees possibility.
According to comments from an event this week, Rubenstein sees commercial real estate debt in downtown office buildings as “the best single investment I know of today.” report By Bisnow.
A host of factors are weighing on the office market, including high interest rates and declining occupancy rates in the post-pandemic world. Researchers at New York University and Columbia University estimate that the average value of New York City office buildings will plummet by 44% from 2019 to 2029.
If banks are more willing to sell debt than take control of property when the time comes, the discount could be steep for those willing to take the short-term hit.
“Most developers or real estate owners of downtown office buildings play a ‘game of guts,'” said billionaire investor Rubenstein.
Ultimately, those buildings will be hit with deep discounts, “bigger than anything we’ve seen since the Great Recession,” Rubenstein said.
“It’s going to be a great cause,” Rubinstein said.
Banks have historically employed stretch and pretend tactics to resolve problem debt. However, with some office assets clearly struggling to turn around, more and more are tearing off the Band-Aid and trying to get out of debt entirely.
“It’s an enviable scenario to end up with a Class B or Class C office building,” Sam Chandan, director of the Global Real Estate Finance Institute at New York University, said on a recent episode. real dealThe Deconstruction podcast. “That’s not necessarily the outcome any lender is looking for.”
Banks may be able to get rid of their debt by selling bad loans for a fraction of the price. The buyer is often able to enter at a discount compared to what is owed on the loan and then initiate debt repayment or foreclosure on the assets associated with the loan.
It’s not a booming market yet.Mark Edelstein, co-chairman of Morrison Foster’s troubled real estate group, said recently TRD He offered distressed office property loans at a brokerage firm in Boston. None of the 150 potential buyers made a bid on the debt.
— holden walter warner
