by Andrew Little, Special Correspondent
Musicians Macklemore and Ryan Lewis probably weren’t referring to distressed buyers of commercial real estate in their 2012 hit song “Thrift Shop,” but the pandemic-stressed real estate market has multiple players lining up trying to find bargain basement acquisition and loan opportunities.
So far, thrifty buyers are somewhat frustrated because the U.S. government propped up both business and residential tenants alike during the first four to five months of the pandemic. That support has largely run its course and now there is an expectation that more opportunities will arise.
About 9.02% of commercial mortgage-backed loans were delinquent at the end of August., which is down about 0.58% from July, according to data from Trepp LLC, a provider of data and analytics to the commercial real estate industry.
The reduction can be viewed multiple ways, but there is a sense that the first wave of shutdowns created delinquencies which have now peaked and, while there is a possibility of more delinquencies as government support ceases or more shutdowns occur, it seems that the worst has passed.
Trepp tracks close to $900 billion in loans which means that there are over $8 billion of loans that are now delinquent across the country.
In the Richmond area, Trepp indicates that about $251.5 million of loans backed by 19 properties are classified as non-performing.
The largest non-performing loan in the data set is the $57.5 million loan backed by Southpark Mall in Colonial Heights.
The mall is anchored by several retailers that are struggling to survive including J.C. Penney and several that were hit hard by the state ordered shutdowns including Regal Cinemas and Planet Fitness.
Southpark’s owner is CBL Properties, a Chattanooga, Tenn.-based owner of retail properties across the country that is currently struggling itself. In late August, the company entered a restructuring support agreement with the majority of its bondholders and is expected to voluntarily file for bankruptcy protection on Oct. 1.
While there is a variety of property types backing the $251.1 million in non-performing loans in the Richmond area, about 75% are backed by retail and hotel properties, both of which are low on the list of assets buyers want right now.
A recent sale on the commercial real estate platform Ten-X demonstrates the drop in non-grocery anchored retail property values.
Parc Place at Short Pump, the 83,000-square-foot shopping center located across the ring road from Dillard’s at Short Pump Town Center, sold at an online auction on Aug. 26 for $10.8 million, with an additional 5% platform fee having to be paid by the buyer. SVN Motleys worked with Ten-X as the broker.
The sale price reflects a $15.3 million drop in value from 2005, when the property traded hands for $26.13 million, according to Henrico online property records. The center is assessed for $17.73 million, the online property records show.
Prior to the Ten-X auction, the property was taken back by the lender in July 2019 at foreclosure for $16.8 million. The center is occupied by several national retailers including PetSmart, Dollar Tree and Tropical Smoothie, but had approximately 22% vacancy at the auction date.
While the market for retail and hotel properties is likely to have some relative bargains, the market for apartment and industrial projects is still extremely heated.
The fate of office properties is being hotly debated and the long-term impact of the pandemic is still uncertain. So, for now, distressed capital looking to pounce on discounts may have to wait a bit longer.
John B. Levy & Co. partner and investment banker Andrew Little can be reached at firstname.lastname@example.org.