Fortress Makes $1B Bet on NYC Office Rebound With Capital One Loan Portfolio Buy

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Fortress Investment Group has acquired roughly $1 billion of office loans from Capital One (COF) with an eye toward a turnaround in New York City’s office sector, Commercial Observer has learned. 

The private lender purchased the loans this week in a move that signifies a “big bet on the rebound of New York City’s office sector,” one source said, with Big Apple office loans accounting for a large chunk of the portfolio, sources told CO. 

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JLL (JLL)‘s Will Sledge and Kyle Kaminski arranged the transaction on behalf of the seller.

The loan portfolio’s specifics couldn’t be gleaned, but Capital One’s lending activity in New York City’s office sector includes The Durst Organization’s 855 Avenue of the Americas and 40 Exchange Place. Whether the loans were purchased at par or at a discount also wasn’t clear, but one source said Fortress has a track record of buying loans “at near par.”

McLean, Va.-based Capital One reported in its second quarter earnings released on July 20 that it “reclassified $888 million in commercial office real estate loans from loans held for investment to loans held for sale as of June 30, 2023.” 

The Capital One office loan sale occurred amid challenging market conditions for banks seeking to sell CRE loans, with lenders including Goldman Sachs and JPMorgan Chase encountering obstacles in recent months unloading certain debt off their books, Bloomberg reported last week. 

After all, office loans have been the proverbial hot potato that nobody wants to be left holding — with multifamily and industrial, on the other hand, remaining the belles of the ball when it comes to asset classes — so some sources expressed surprise that Fortress is now leaning in, heavily. 

On the origination side, Capital One originated $35.7 billion of CRE loan volume for the 12-month period ending on March 15. A prolific agency lender, the firm has been especially active on the multifamily front, providing a $200 million loan package this month to refinance four apartment complexes, totalling 1,300 units, in New York and New Jersey owned by Eagle Rock Properties

Officials for Fortress and Capital One didn’t immediately return requests for comment. 

Cathy Cunningham contributed to this article’s reporting. 

Andrew Coen can be reached at acoen@commercialobserver.com.