From the article: […] “Cut in half,” if that’s not exaggerated, means the buildings are still worth something, but the loans are likely underwater. In 2008, sometimes homeowners would walk away...
From the article:
Signature Bank’s partial takeover by a competitor is notable for what it doesn’t include: $11 billion of loans against a class of New York City apartments whose values have tumbled in recent years.
In a deal with the Federal Deposit Insurance Corp., New York Community Bancorp Inc. is buying more than $34 billion in Signature’s deposits, as well as $13 billion in loans and 40 bank branches. Left behind is the commercial real estate debt portfolio, weighted heavily toward multifamily buildings bound by a law that restricts landlords’ ability to raise rents.
“It’s toxic waste,” said Christopher Whalen, chairman of Whalen Global Advisors. “From an investor point of view, these are dead assets.”
[…]
The loans in question finance rent-stabilized apartments, so called because price hikes are capped under state law. In the past, landlords were able to increase rents by larger increments when a tenant moved out, and buildings could become deregulated once rates rose beyond certain levels. But provisions of a 2019 law placed new restrictions on owners, limiting investor demand for the regulated properties.
“We witnessed in real time the valuation of buildings being cut in half,” said Jay Martin, executive director of the Community Housing Improvement Program, a Manhattan-based landlord advocacy group.
Government interventions during the pandemic, such as the Paycheck Protection Program and rental assistance, delayed some of the issues for landlords. Now, while the help from those initiatives is winding down, a sharp increase in interest rates has made it harder to refinance buildings.
“Cut in half,” if that’s not exaggerated, means the buildings are still worth something, but the loans are likely underwater. In 2008, sometimes homeowners would walk away and let the bank take the house. Is that a thing for apartment buildings?
I would also wager large apartment owners took on as much fixed rate debt as they could possibly handle during these periods of sub 4% interest, under the guise of renovations, given how typical...
I would also wager large apartment owners took on as much fixed rate debt as they could possibly handle during these periods of sub 4% interest, under the guise of renovations, given how typical inflation/growth would outpace it.
IMO a good strategy would be to have government facilitate setting up tenant co-ops if owners want to unload their now-underwater properties.
Though I always get frustrated when capital doesn't have to uphold their share of "risking their money" when they use it to justify perpetual profits against 'safe' investments like real estate.
These are examples of investors losing their money. The failed bank’s shareholders lost their money. If the loan doesn’t get paid off, the bank lost money. And the landlords likely lost some...
These are examples of investors losing their money. The failed bank’s shareholders lost their money. If the loan doesn’t get paid off, the bank lost money. And the landlords likely lost some money, though probably not as much as the bank. (A bank likely wouldn’t allow them to borrow more than their assets are thought to be worth.)
The construction firm that built the apartments, or the previous owner, presumably got paid.
And it’s all because the renters will have lower rents in the future. The building would have been paid for with future rent money, and now it won’t. (Unless the law is changed. I think there may be lawsuits.)
If you think landlords and investors should lose sometimes, so far it’s looking like you’ll get your wish. They do complain, though.
From the article:
[…]
“Cut in half,” if that’s not exaggerated, means the buildings are still worth something, but the loans are likely underwater. In 2008, sometimes homeowners would walk away and let the bank take the house. Is that a thing for apartment buildings?
Probably more likely for apartments since the owners will tend to be large management companies and they won’t be made homeless by walking away.
I would also wager large apartment owners took on as much fixed rate debt as they could possibly handle during these periods of sub 4% interest, under the guise of renovations, given how typical inflation/growth would outpace it.
IMO a good strategy would be to have government facilitate setting up tenant co-ops if owners want to unload their now-underwater properties.
Though I always get frustrated when capital doesn't have to uphold their share of "risking their money" when they use it to justify perpetual profits against 'safe' investments like real estate.
These are examples of investors losing their money. The failed bank’s shareholders lost their money. If the loan doesn’t get paid off, the bank lost money. And the landlords likely lost some money, though probably not as much as the bank. (A bank likely wouldn’t allow them to borrow more than their assets are thought to be worth.)
The construction firm that built the apartments, or the previous owner, presumably got paid.
And it’s all because the renters will have lower rents in the future. The building would have been paid for with future rent money, and now it won’t. (Unless the law is changed. I think there may be lawsuits.)
If you think landlords and investors should lose sometimes, so far it’s looking like you’ll get your wish. They do complain, though.
Well, maybe, but they might also be better at negotiating with a bank to get better terms?