NYC Lenders Increase Caution Amid CRE ‘Distress Grip’

The current lending landscape has pushed New York City real estate lenders and borrowers into a precarious situation. The rapid rise of interest rates after more than a decade of hovering near zero combined with a lowering of property values in some sectors has prompted most lenders to stick with existing customers while being extremely cautious about adding new ones. As a result, property owners that have incurred declining values due to high vacancies are experiencing heightened challenges to refinance expiring debt. Suggested options from lenders on how to proceed are essentially non-existent since they are trapped themselves between decisions to either foreclose on the properties or allow borrowers to buy time in hopes that macro conditions improve since there is a likelihood that a foreclosure sale wouldn’t cover the debt and “most banks don’t have the bandwidth, financial flexibility or expertise to hold, renovate and re-tenant office properties to improve their valuations.” An analysis of mortgages recorded on city records between July 2022 and July 2023 revealed a 14% decline in issued dollar volume by the top 20 lenders in the city from $30.2 billion in the previous year to $26 billion. Similarly, the total number of loans during the same period fell from 16,682 to 12,080, representing a 28% decline.