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The top regulators of the U.S. banking system are asking lenders to take it easy on commercial real estate owners who are faced with their most difficult environment in over a decade.
Banks should work with commercial real estate firms to find “accommodations and workouts” for upcoming maturities, a group of federal regulators said Thursday in announcing updated guidance for financial institutions.
The commercial real estate sector is facing almost $400B of loan maturities this year alone, and delinquencies are on the rise. The new guidance, which comes in a statement from the Federal Reserve, Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the National Credit Union Administration, is the first update to the regulators' stance on commercial real estate workouts since the Great Recession in 2009. The update includes a section on short-term loan accommodations and updates to its loan workouts section.
Banks and financial institutions should “work prudently and constructively with creditworthy borrowers during times of financial stress,” the advisory says.
Where applicable, lenders should agree to accept partial payments, deferred payments and provide other assistance. The updated guidance also includes information designed to address changes in accounting practices.
Banks are in a stable position to help commercial real estate owners and borrowers, the Fed said earlier this week. Despite concerns earlier this year over volatility and bank failures, the Fed’s annual stress test found that banks could withstand a 40% drop in commercial real estate values — more than half a trillion dollars — without failing, The New York Times reported.
MSCI Real Assets estimated that the sector’s distressed assets reached $64B during the first quarter, Bloomberg reported. The delinquency rate on commercial mortgage-backed securities loans tied to office properties hit 4.5% in June, rising sharply from 1.6% six months ago, according to Trepp.
As more borrowers struggle to pay off loans facing maturities, they are increasingly being asked to put in more cash to extend their balloon payments. When RFR secured an extension on the year's biggest maturing office loan at 375 Park Ave., it paid down $15M in principal and agreed to lay out $40M more over the next two years.
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