Fortress acquires $1bn office loan portfolio from Capital One

Fortress Investment Group this week acquired a roughly $1 billion office loan portfolio from Capital One, a transaction which gives the firm significant exposure to the New York market.

The New York-based manager’s August 17 acquisition from the McLean, Virginia-based bank contrasts with current market sentiment, which has resulted in more lenders shying away from allocating debt capital toward US office assets.

Initial reporting from the Commercial Observer cited one market analyst as noting the move signals a “big bet on the rebound of New York City’s office sector.” Sources noted New York City office loans accounted for a large portion of the portfolio but they were unable to provide a specific breakdown.

Chicago-based advisory JLL arranged the transaction on behalf of Capital One. A Capital One spokesperson confirmed the sale included approximately $900 million of office loans from the bank’s overall commercial real estate portfolio. Further details on the loan portfolio were not available at the time of publication and all firms involved did not return requests for comment.

Office financing in New York City has primarily favored asset conversions and refinancings this year, affiliate publication Real Estate Capital USA data shows. Mismatched valuations, volatility from interest rate increases and generally slow return-to-office momentum have all contributed to the drop in office financing origination volume this year.

Larger financings for New York City offices in 2023 have skewed toward office-to-apartment conversions in particular. Mexico City-based Banco Inbursa represented the most recent lender to fund such a conversion with a $220 million financing for Silverstein Properties and MetroLoft Developers to convert New York’s 55 Broad Street office.

Prior to Banco Inbursa, MSD Capital and Apollo originated a $536 million financing for GSP Real Estate, MetroLoft and Rockwood Capital for the largest-ever office-to-residential conversion in the US. The February deal was to acquire and redevelop New York’s 25 Water Street, just a quarter mile away from the 55 Broad Street conversion.

In parallel with office refinancings and conversion financings, loan portfolio sales have also picked up in frequency this year in part because of regional banking volatility. Most notably, Beverly Hills, California-based Pacific Western Bank split its commercial real estate loan portfolio across three separate deals featuring Kennedy Wilson Holdings, Cain International, Security Benefit Life Insurance and Ares Management.

Unlike PacWest however, Capital One’s portfolio sale is smaller in scale and focused on reducing exposure in one asset class, particularly in a city where valuations have seen widespread valuation declines compared to prior quarters and years.