Capital One Selling $1B NYC Office Loan Portfolio To Fortress

Capital One HQ entrance
Bisnow/Jon Banister
The Entrance To Capital One's Headquarters In Tysons, Va.

One of the nation's biggest banks is shedding a substantial office loan portfolio amid warnings the asset class has the potential to sink the performance of financial institutions.

Capital One has sold a portfolio of roughly $1B in loans tied to office buildings with a concentration in New York City, Commercial Observer reports. It is unclear which loans are changing hands in the deal that will see investment manager Fortress Investment Group acquire the debt.

Capital One said in its latest earnings statement that it had changed $888M in office loans on its balance sheet "from loans held for investment to loans held for sale." The buildings on which it has provided mortgages include The Durst Organization’s 855 Sixth Ave. and 40 Exchange Place, CO reported.

JLL's Will Sledge and Kyle Kaminski brokered the deal, per CO.

The sale comes as pressure builds on office debt. This week, Fitch Ratings warned it could downgrade the credit ratings on dozens of banks, partly due to exposure to commercial real estate loans that have become increasingly difficult to refinance, CNBC reported. Roughly 5% of CMBS office loans were delinquent in July, according to Trepp, up from below 2% at the end of 2022.

As more office owners decide their best course of action is to hand keys to their properties over to lenders, many financial institutions, like JPMorgan Chase, are looking to sell their loans to parties more keen on takeovers.

Executives at Fortress, which in May was sold by SoftBank Group to Mubadala Investment Co., the Abu Dhabi sovereign wealth fund, said earlier this year that the company would be interested in taking on office debt it felt confident would get paid back, rather than pursuing a loan-to-own strategy, The Real Deal reported.

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