Despite a recent report ranking Baltimore among the nation’s top markets regarding troubled office asset loans, industry insiders downplay the prospects of a glut of discounted office properties hitting the market via lender sales.
Cushman & Wakefield’s recent Obsolescence Equals Opportunity report classified nearly 3% of outstanding office loans in the Baltimore area as troubled. That placed it No. 8 on a list of 27 U.S. cities with at least $10 billion in outstanding loans.
“We can’t ignore the phenomenon, but we haven’t seen any impact yet,” Mike McCurdy, Cushman & Wakefield managing principal for the Baltimore region, recently told Bisnow.
Cushman & Wakefield ranked Orlando as the top market in the percentage of office space with credit troubles. Nearly 5% of outstanding office loans in Orlando were in some form of distress.
Charlotte and Nashville were No. 2 and No. 3 on that list, with about 4.5% of office loans troubled. Conversely, St. Louis, Austin and Boston ranked at the bottom of the list, with less than 1% of outstanding office loans listed as troubled.
Researchers defined a troubled loan as a lender-owned property or those with statuses listed as potentially troubled or troubled.
Abby Corbett, the report’s author and Cushman & Wakefield’s head of investor insight, also downplayed the ranking calling the percentage of troubled loans in Baltimore “very low.”
There is about $46.5M in delinquent Commercial Mortgage-Backed Securities loans for office buildings in the Baltimore area, which is roughly 5.3% of the total number of those loans, according to Cred iQ’s most recent delinquency tracker. That represents a decrease of less than 1% from the number of troubled loans from January.
However, with a large part of the office market struggling to retain tenants, concerns emerged last year that many office properties in Baltimore might not meet their debt obligations.
Locally those concerns peaked in August when the Baltimore area had the nation’s highest month-over-month increase in distressed CMBS commercial real estate loans, according to Cred iQ’s delinquency tracker.
The primary culprit in that month-over-month jump was a $67.8 million loan to the Gallery at Harborplace that failed to pay off at maturity in May. That loan was then paid off in full by August, according to Cred iQ.
However, isolated high-profile properties face scrutiny over potential credit woes, most notably the former Exelon Tower at 650 S. Exeter St. in Harbor Point.
Commercial real estate data firm Trepp listed the roughly 612,500-square-foot building and its $140.3 million loan as a potentially troubled asset. The company attributed that status to the office tower’s struggles with vacancy. The property grappled with vacancy even as surrounding trophy buildings contributed to some of the most muscular leasing activity in recent memory.
Then in late February, the Baltimore Business Journal reported the loan for the building, provided to an affiliate of developer H&S Properties Development Corp., landed 650 S. Exeter St. on a loan-service watch list.
Despite the struggles of the local office market, especially older buildings, those properties have largely avoided defaulting on loans. A prospect that led some to believe there was potential for a glut of office properties hitting the market, creating an opportunity for investors to nab deals on those assets.
However, even if there was a surge in foreclosures leading to lenders selling office buildings at a discount, it remains unclear whether investors have an appetite for those assets.
Underscoring the lack of investor interest in office properties, given the doubts about future demand for the product, and increasing interest rates, there were no investment sales of note in the fourth quarter of last year, according to a Commercial real estate services firm Newmark.
That’s a time of year when, according to that market report, a substantial number of deals usually close.