Banks and other lenders have juggled non-performing loans by extending deadlines or renegotiating terms. It's been a bit here, another one or two there. But some anecdotal evidence — it will take time for data to show patterns more surely — suggests that both lenders and buyers are looking at moving larger blocks of properties and loans.
In July 2024, Realfin reported that FS Credit Real Estate Income Trust purchased a $351.8 million portfolio of senior loans from a commercial bank during the summer of 2024. The bank was trying to rebalance its CRE loan holdings to get risk off its books.
Trilogy Real Estate Group reportedly has hired Newmark to sell a portfolio of 10 properties with 2,845 units for about $500 million, according to CoStar News. Trilogy will consider bids for individual properties or subparts of the portfolio.
Blackstone sold a $1.6 billion student housing portfolio to KKR in April 2024. And in August 2024, KKR acquired six Class A logistics properties valued at $377 million. In May, DRA bought a portfolio of buildings in Silicon Valley in a deal totaling $222M from affiliates of Blackstone.
In January 2024, a Blackstone partnership with Canada Pension Plan Investment Board and Rialto Capital that had won a 20% stake in nearly $17 billion of the former signature loans in December 2023 was looking to sell them.
And former boxer Floyd Mayweather, Jr. just struck a $402 million deal for 60 buildings that included 1,000 affordable units. It's the second largest such acquisition in New York City for 2024, only behind the $672 million distressed transaction from Michael Stern to Silverstein Capital Partners
Again, there isn't enough data yet to identify a trend in purchases and sales of property and loan portfolios. However, the buildup of such portfolio transactions is promising.
"We have seen stronger loan sale activity for over a year now, in the wake of the significant interest rate rises of 2022, with NPL office loans being the largest part of those early sales," Nels Stemm, principal of Fairview Partners, told GlobeSt.com. "While selling NPLs is a well-established management technique, large sales of performing or sub-performing loans are often indicative of major shifts in the market, like wishing to reduce a property type such as office."
"Sales of loans at a discount for troubled and non-performing assets is an increasingly viable option for banks," Simran Bindra, a partner at Thompson Coburn LLP in Los Angeles, told GlobeSt.com. "Banks like the optionality as the loan sale is one of the few things a lender can do unilaterally." Other remedies typically need borrower cooperation. "Although banks can always foreclose on assets, doing so comes with its own set of issues in terms of frictional costs and potentially being responsible for the operations of a property. For certain assets, such as hospitality assets or others that require constant monitoring and operations, that is something to avoid."
Even with loan sales, there are dangers. "The problem today with these sales is that not only can collateral property values be impaired, but the loan terms are now unfavorable," Stemm said. "Most CRE loans from pre-2022 have rates below or near treasuries of comparable maturity. Whereas a desirable CRE loan would have a meaningful spread above the risk-free treasury."
Some big players are likely buying and selling portfolios to help support property values to avoid plunging prices from mark-to-market activity. Banks are losing patience and hope that the so-called extend and pretend strategies will see them through pressure to recognize losses, so now they're starting to rebalance, likely taking losses in the process. It's unclear how quickly or how far the Federal Reserve will move to reduce interest rates, but it seems unlikely that the ultralow levels and high leverage common a few years ago will be entertained. That gives an advantage to institutions with heavy sources of capital that can afford to buy entire portfolios.
If this is a trend, it could be good news for the entire industry, allowing a reduction of financial pressure and a return to greater stability and price discovery.