The economic impact of the pandemic caused by the new coronavirus has taken a toll on owners of commercial property in New York City. The worst is far from over for building owners as businesses occupying commercial and retail space close, suspend or limit operations. Local lenders appear to be victims of the downward spiral in property values of commercial property as their rush to originate loans in the boom years before the pandemic has left them with portfolios filled with mortgages secured by undervalued collateral.
Crisis in the commercial market
2020 looked to be another year of high demand for apartments, retail space, offices and other commercial uses in NYC. The demand for commercial real estate was met by a frenzy of activity by local lenders offering financing to owners and developers. That was before COVID-19.
The coronavirus and government efforts to halt its spread have combined to bring the boom in commercial real estate markets to a halt. As apartment vacancies increase, retail establishments close their doors, and demand for office space diminishes, the value of commercial properties securing mortgages continues to decline. Local lenders set up reserves in anticipation of defaults by commercial borrowers.
Lenders forced to grant payment relief to borrowers
As a consequence of commercial landlords losing tenants or being unable to collect rent, local lenders have been forced to react. One lender admitted to deferring mortgage payments on most of the loans in its commercial portfolio.
Local banks struggle with declining values of their shares
Local lenders in the NYC commercial marketplace have already witnessed dramatic declines in the value of their shares. Predictions of trouble in the commercial real estate market continuing beyond 2020 raise concerns about long-term repercussions for NYC lenders.