In Commercial Real Estate Financing, Clear Shifts Mean New Approaches

Rockefeller Center, a historic landmark that for decades symbolized New York City’s financial and entertainment might, provided a fitting setting April 30 for Commercial Observer’s annual spring National Finance Forum, where some of commercial real estate’s biggest players gave their temperature checks on the state of an industry besieged by new challenges.

The semiannual event was held for the first time at Convene Quorum at 1221 Avenue of the Americas steps from 30 Rock. It also came a day after the CRE industry was confronted with another reminder of the sustained elevated borrowing costs the past four years when the Federal Reserve paused interest rates for a third straight meeting.

The symposium opened with an opening keynote featuring Rob Verrone, principal at Iron Hound Management, who spoke about the state of distressed loans in the commercial mortgage-backed securities (CMBS) market. Verrone, whose advisory firm negotiates CMBS loan restructurings on behalf of borrowers, said losses are mounting far more now than during the height of the COVID-19 pandemic.

“In COVID you didn’t see a lot of people taking losses because you weren’t going to sell your property when the world was shut down,” said Verrone in the kickoff keynote moderated by Joseph Barbiere of law firm Cole Schotz. “But now five years later the proof is in the pudding, and there are people actually transacting and doing A and B notes or discounted payoffs or consensual loan sales. … We’re actually taking the losses if the people who own the bonds can afford it and if the price is right.” 

Verrone noted that the office sector is the largest part of its pipeline of restructurings, but Iron Hound is also heavily involved with navigating troubled loans in other asset classes. He stressed that beyond the property type, other factors weigh heavily on whether a loan can secure a workout. That includes who is in control of the debt and how many bonds are left in the sector.

The duration of workouts has gone up, often taking more than two years. Verrone attributes that partly to delay tactics often instilled by borrowers trying to wait for a better bond market. He added that the CMBS business has also gotten more complex, with a greater number of forms and legal documents that need to be filled out as parties conduct sufficient due diligence to avoid legal troubles.

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