“If you’re looking for a bare-knuckled fistfight in CMBS, this is it.”
– Richard Fischel, Brighton Capital Advisors.
A high-stakes battle unfolding in commercial real estate involves big Wall Street players and Elon Musk — and it’s not about his tweets.
As Musk was proclaiming in May that CRE is “melting down” and his since-renamed social media company was refusing to pay its office rent, Twitter’s landlord, Columbia Property Trust, was in default on loans that valued its portfolio at $2.3 billion.
That debt is held by Goldman Sachs, CitiBank and Deutsche Bank, and by bondholders who own pieces that were packaged into commercial mortgage-backed securities.
Also in the picture is Howard Marks’ Oaktree Capital, which is believed to hold the riskiest tranche of the CMBS, a position that put the famed distressed-debt investor in the driver’s seat to oversee a loan workout.
But a new appraisal this June valued the Columbia portfolio at just $1.6 billion, potentially devaluing Oaktree’s position so much that the company would lose its right to oversee the workout.
Oaktree, however, challenged that valuation and put forth a new one — $1.8 billion. The servicer overseeing the loan plans to accept that figure, putting Oaktree back in control of what’s shaping up to be one of CRE’s biggest power struggles.
“If you’re looking for a bare-knuckled fistfight in CMBS, this is it,” said Richard Fischel, a CMBS specialist at Brighton Capital Advisors.
As distress works its way through real estate, many of the equity investors have been cleaned out, leaving lenders holding the bag. But CRE lending is a different world than equity, with its own complex rules about who gets paid when — and who decides how it all shakes out.
The lenders overseeing the deals could end up getting valuable real estate for pennies on the dollar. And those forced to the outside could end up losing their shirts…
