Distressed Loans Face Valuation Pressures
CRED iQ analyzed 480 properties that were reappraised in 2023. The top 25 valuation declines all received an updated appraisal in the third quarter, and each of these properties were either delinquent or with the special servicer.
In total, the average decline in value compared to the original valuation at issuance was 41.6 percent — a very slight overall increase of four basis points over the first half 2023.
By property type, office and retail had the highest percentage-based declines . Office averaged a 50.3 percent drop while retail properties averaged a 51.7 percent dip across the sample set of CRED iQ data.
The office average decline is slightly up from our last analysis in July, when office valuations declined 48.7 percent on average.
Comparing the second quarter of 2023 with our current analysis, the average multifamily valuation decline deteriorated this quarter from 22 percent to 33.6 percent. Likewise, industrial dropped from a 21.2 percent decline to a 32 percent drop in the third quarter.
Self-storage remains the strongest asset class with no specially serviced or delinquent loans reporting a decline in value this year.
Here are the most notable properties that made our third quarter list:
1740 Broadway, New York City
CRED iQ first alerted the industry of this distressed 604,000-square-foot office tower in Manhattan back in March 2020, when it first defaulted. The property topped our list with a stunning valuation loss of $430 million, or 71.1 percent of its value. At origination, the collateral was valued at $605 million ($1,002 a square foot). Its latest appraisal posted a valuation of just $175 million ($290 a square foot).
229 West 43rd Street, New York City
This property topped our list of valuation drops in our first half 2023 report. The 248,457-square-foot apartment/retail, mixed-use property lost $386 million in valuation since origination, or 82.1 percent.
Woodbridge Center, Woodbridge, New Jersey
Holding its grip on third place in our study is this 1.1 million-square -foot mall, which lost 76.5 percent of its valuation, or $280 million.
Nema, San Francisco
This 754-unit apartment complex cracks the top 5 for the multifamily category — seeing its valuation at origination of $543.6 million decline by 48.7 percent to $279 million, a reduction of $264.6 million.
Park Place Mall, Tucson
Our second of two malls in the top 5, this 478,333-square-foot retail property lost 72.2 percent of its value from its origination of $313 million, dropping to $87 million. On a price per square foot basis, the mall’s valuation is at $182, a significant decline from $654 a square foot at loan origination in 2011.
As we stated in our first-half report, the current market conditions are having a significant impact on the valuation of commercial real estate properties across all asset classes. Our overall valuation declines remained mostly flat compared to our first-half report. The most notable developments in the third quarter were at the property-type level with industrial and multifamily seeing their sector loss percentages grow by about 11 percent each.
Mike Haas is the founder and CEO of CRED iQ.