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Rising interest rates, stubborn inflation and squally economic conditions are familiar foes to seasoned commercial property buyers, who typically ride out storms waiting for rental demand to rally and the cost of borrowing to fall. Cyclical downturns rarely prompt fire sales, so long as lenders are confident the investor can repay their loan and the value of the asset remains above the debt lent against it. This time though, analysts, academics and investors interviewed by Reuters warn things could be different. With remote working now routine for many office-based firms and consumers habitually shopping online, cities like London, Los Angeles and New York are bloated with buildings local populations no longer want or need. That means values of city-center skyscrapers and sprawling malls may take much longer to rebound. And if tenants can’t be found, landlords and lenders risk losses more painful than in previous cycles. Read more.

Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available at the ABI Store.

Older, low-end malls are worth at least 50% and in some cases more than 70% less than they were when mall valuations peaked in late 2016, said Vince Tibone, head of U.S. retail and industrial research for real-estate research firm Green Street, the Wall Street Journal reported. Now, as more than $14 billion of loans backed by these properties comes due in the next 12 months, according to Moody’s Analytics, struggling malls are defaulting on their debt. With mortgage rates up sharply, refinancing that debt will be more challenging and expensive. About a fifth of all malls financed through commercial mortgage-backed securities are underwater, meaning the properties are worth less than the loans they back, said Kevin Fagan, head of commercial real-estate economic analysis for Moody’s.

All Saints Catholic Church, the only Catholic church in Buffalo’s Riverside section, will be put up for sale — likely this fall — as part of a plan to market a large school building, parish hall and rectory adjacent to the church, the Buffalo News reported. Parish leaders say they prefer to keep the church and sell just the other buildings, but the plan calls for all the properties to be listed together so as not to discourage potential developers. At the same time, they’re trying to raise money for repairs that will allow groups to use a portion of the school building again and generate some rental income for the parish of about 200 families. The entire school building on Esser Avenue has been off limits for months because the fire alarm system needs about $12,000 in repairs that are slated to begin in mid-August. Those fixes would allow the parish to reopen the first floor of a newer portion of the school for Boy Scout meetings, as a polling site and for other uses. In 2022, All Saints joined with Assumption in Black Rock and Holy Spirit, St. Margaret, St. Mark, and St. Rose of Lima in North Buffalo as one “family of parishes” under a new reorganization plan being pushed by the diocese as it deals with a chapter 11 bankruptcy and a growing shortage of priests.

Cerberus Capital Management and Highgate missed two months of payments on a $415 million loan for 30 Courtyard by Marriott hotels, another sign of spreading trouble in commercial real estate, Bloomberg News reported. Cerberus and Highgate have requested an extension of the floating-rate loan, which matured in July, according to a servicer report. “Borrower stated that they do not have enough funds to cover the shortage and the regular monthly debt service,” according to the report. More commercial-property loans have become delinquent as borrowing costs increased. The delinquency rate on commercial mortgage-backed securities for hotels climbed to 5.35% in June from 4.4% six months earlier, according to Trepp. The delinquent Courtyard portfolio was facing a higher insurance payment following Hurricane Ian and Tropical Storm Nicole, which struck the U.S. last year, according to the report. Property insurance prices in the U.S. increased by 17% in the first quarter, according to data from Marsh McLennan.

American banks are losing interest, consumer advocates say, in writing mortgages for inexpensive homes, The Hill reported. Their exodus from the small-mortgage market leaves a patchwork of risky, poorly regulated home-loan alternatives that can propel the most vulnerable buyers into debt or homelessness. Twenty years ago, the median home cost less than $200,000, and banks routinely approved mortgages for half that amount. Today, the median home costs $437,000, and buyers struggle to find banks that will write mortgages for less than $150,000. Instead, many buyers turn to alternative financing, a universe of personal property loans, lease-purchase agreements, land contracts and seller-financed mortgages. Typically, those transactions are both riskier and costlier than a mortgage, and they fall outside the regulatory cocoon that protects homebuyers from fraud and trickery. In the worst cases, borrowers can lose their home and their solvency. “People think that they are on the path to owning their own home, when in fact they are on a path to financial disaster, forfeiting all of the money that they have paid in, as well as the place that they thought was their home,” Sen. Tina Smith (D-Minn.) said. “Too often, these contracts are designed to fail.” Smith spoke on Tuesday at a Senate hearing with the dramatic title, "Exploiting the American Dream: How Abusive Land Contracts Prey on Vulnerable Homebuyers." Buyers stray outside the protective red tape of the mortgage industry for many reasons. They may have low credit scores, or lack the funds for a down payment, or wish to avoid the deep document dive that attends a mortgage application. The purchaser may lack financial literacy. The lender may be a family friend. “My clients tend to have trusted the seller, the people who approached them with a situation that maybe sounded too good to be true,” Elizabeth Goodell, supervising attorney at Mid-Minnesota Legal Aid, said at the Senate hearing.

The owner of the tropical island-themed Margaritaville Resort Times Square in New York has filed for bankruptcy to stop an imminent foreclosure sale, WSJ Pro Bankruptcy reported. The legal entity that owns the Times Square hotel, inspired by the namesake Jimmy Buffett song, blamed its financial difficulties partly on fallout from the COVID-19 pandemic since the hotel opened in 2021, according to its bankruptcy filing Sunday with the U.S. Bankruptcy Court of Manhattan. It owes $309 million to its lenders. The hotel, which has 75 employees, will likely file for bankruptcy itself, according to a court filing. A lender has said that the property is significantly underwater and that the owner doesn’t dispute that it has defaulted on its debt. In late June, the owner sued the lender in a state court, hoping to postpone a Monday foreclosure sale and give it time to hang on and search for debt refinancing. But the business “was unable to obtain a temporary restraining order to stay the auction sale in the state court, triggering the urgency for the bankruptcy filing,” President Sethian Pomerantz said in a sworn declaration filed with the court. The chapter 11 filing put the foreclosure sale on hold, a lawyer for the hotel owner told the Wall Street Journal. The company’s goal is to negotiate with its creditors and refinance its debt.

U.S. banking regulators are asking lenders to work with credit-worthy borrowers that are facing stress in the commercial real estate market, Reuters reported. Financial institutions should work "prudently and constructively" with good borrowers during times of financial stress, the agencies said in a statement. The statement from the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp, the National Credit Union Administration and the Office of the Comptroller of the Currency updates and supersedes the previous guidance on commercial real estate loan workouts issued in 2009. Office loans have posed concerns for some U.S. lenders as property values decline and more borrowers default on their loans. Federal Reserve Chair Jerome Powell earlier in the month said that U.S. commercial real estate lending remains under pressure but appears unlikely to threaten the broader financial system. The new guidance contains short-term loan accommodations that includes an agreement to defer one or more payments, make a partial payment, or provide other assistance or relief to a borrower.