Below are press releases from company’s with preferred stock or baby bonds outstanding–or just general news of interest.
Great Elm Group Reports Fiscal 2023 Second Quarter Financial Results
Vornado Announces Fourth Quarter 2022 Financial Results
Freddie Mac Announces Release Date for Fourth Quarter and Full-Year 2022 Financial Results
Arch Capital Group Ltd. Reports 2022 Fourth Quarter Results
Investcorp Credit Management BDC, Inc. Announces Financial Results for the Quarter Ended December 31, 2022, and Quarterly and Supplemental Distributions
Agree Realty Declares Monthly Common and Preferred Dividends
Vornado’s report makes for interesting reading in light of the recent Barrons/Marketwatch article on the repricing of interest payments on Single Asset Bond mortgage debt because of higher rates. (“Losing the trophy? A $45 billion mortgage bill is coming due for some of America’s signature commercial properties.” – Feb 10.) I thought New York City property only went up in value, like houses before 2008.
You have to dig down into their Quarterly for a casual mention of their property-level mortgage default, which is written up rather nonchalantly.
“On December 21, 2022, the 697-703 Fifth Avenue $450,000,000 non-recourse mortgage loan matured and was not repaid, at which time the lenders declared an event of default. During December 2022, $29,000,000 of property-level funds were applied by the lenders against the principal balance resulting in a $421,000,000 loan balance as of December 31, 2022. ….. The Fifth Avenue and Times Square JV is in negotiations with the lenders ….”
Vornado was smart enough to stay off the corporate hook on this one.. I can’t imagine a bank wanting to add a $450 million item to its REO. The banks will probably restructure. (Technically called “pretend and extend.”)
Both Wall Street and The Other Website say Vornado is a buy. It is up 12% on the year and pays a ~6.4% divvy.
No position in Vornado. Just my opinion.
Bear, I am sure you know but others may not about how these “defaults” work. A “special servicer” firm takes control and avoids putting the whole property into bankruptcy. These firms handle workouts like this all of the time. One of the largest firms is owned by publicly traded Starwood Property Trust (STWD) called LNR Partners. Like you said, the banks do not want to take control of these commercial properties, so the special servicer works out something to minimize the pain for all. IIRC, Starwood talked about his this business has upticked recently on their last conference call.
We do own STWD in many accounts, but this is NOT a recommendation that you should buy it or own it. It is very much a one-off commercial mortgage REIT. We do not own VNO common in any account, but have small quantities of VNO preferreds in a few accounts.
Link to LNR:
https://www.starwoodpropertytrust.com/our-businesses/investing-and-servicing/
“works out something to minimize the pain for all.”
Isn’t there a point where this isn’t possible? Some of the haircuts I have seen for recent transactions in NYC were pretty severe.
Justin, the keyword is “minimize” which is not quite eliminate! In this case Vornado as well as the bank(s) is going to take a hit. The bank which has no expertise marketing/leasing/selling commercial properties does not want the building back. VNO has all of the expertise developing/leasing commercial properties but made a business decision to mail in the keys. Both parties still need other, so the special servicer will attempt to arbitrate a solution that both can live with. Like I said, Barry said their special servicing business has been strong recently.
If no deal can be reached, the special servicer will work with the bank(s) and firesale it to somebody else. Special servicers do not usually head straight to this solution though, they try to get a better outcome.
Thanks for the reply. I didn’t know Starwood had a workout operation. While Vornado may work things out, I think Vornado is telling us NYC office building prices are weak. IMHO, an owner wouldn’t want to risk losing a major property to a default if it thinks prices are going up. Weakness is also appearing in LA. From the Real Deal yesterday ( “Brookfield defaults on $784M on loans connected to Downtown LA office towers” )
“Brookfield has defaulted on $784 million worth of loans connected to two of its trophy office towers in Downtown L.A. The firm defaulted on a $465 million loan package connected to the Gas Company Tower at 555 West 5th Street and $319 million in loans connected to 777 South Figueroa Street, according to an SEC filing on Friday.
“An event of default has occurred” on both loans, a Brookfield subsidiary disclosed, adding “lenders may exercise their remedies,” which include foreclosure.”
Zoom meetings, tech layoffs, higher interest rates, recession fears — I think office building values will be weak for a while, in spite of the usual real estate industry rah-rah. Office REIT preferreds may be okay, but I’m avoiding / exiting commons. There are plenty of other things to buy. Just my opinion.