The rising number of CMBS restructurings helped push up the amount of distressed real estate in the US by almost 41 percent in April, taking the total value of troubled property in the country to more than $184.6 billion.
According to data provider Real Capital Analytics, a recently revised approach to CMBS loan modifications has contributed to $12.8 billion worth of new real estate distress being reported last month. In September, the US Internal Revenue Service said CMBS special servicers could pre-empt defaults by allowing loan modifications “prior to an imminent default”, rather than only afterwards. Approximately 60 percent of the new troubled real estate recorded by RCA is tied to CMBS-backed assets, up from just 5 percent in March.
RCA classes distressed real estate as having fallen into default, foreclosure or bankruptcy. Including real estate where troubled loans have been restructured and resolved, the amount of distress climbs to $239 billion.
The climb in the level of real estate distress in April came primarily from the office and hotel sectors, both of which observed major assets and portfolios sink into troubled territory. Morgan Stanley’s $2 billion default on the Revel casino-hotel project in Atlantic City was a significant contributor to RCA’s figures in April.
Last week, Lehman Brothers Holdings won court approval to restructure $5.2 billion of debt of apartment complex owner Archstone Smith. Lehman, which acquired Archstone with Tishman Speyer for $22 billion in a 2007 take-private, had already restructured $485m of Archstone’s debt last March to ease the apartment owner’s liquidity problems.
The pain is expected to last, according to RCA, with the New York-based firm having already tracked roughly $10 billion of new distress in May alone.