How to Be Prepared for Distressed Assets in 2024

With CRE Distress on the Horizon and a Lot of Turnover in Loan Workout Groups, What’s the Industry to Do?

Published in GlobeSt.com on Dec. 21, 2023
By Jenny Redlin, REPA, Principal, National Client Manager

Though there is recent optimism for an improving CRE market in 2024, there is still reason for concern about a potential wave of distressed assets coming due to several factors – reduced property values in several sectors, softening rent growth, a higher interest rate and tightened credit environment, and a wave of maturities coming due that will have trouble refinancing.

When a loan starts to exhibit signs of distress – whether the distress stems from the property itself, the market, or the borrower/owner – lenders start taking a closer look at what is going on with the property and preparing for what decisions they may need to make. Currently, banks are doing whatever they can to avoid taking the keys back, while special servicing groups and loan workout groups are bracing themselves for a potential influx of troubled loans. It has been a while since the industry has had to deal with a high volume of distress and the challenge with these loan workout groups is that they don’t stick around once markets correct themselves – I have heard them joke that they “work themselves out of a job” as they work through the stack of problem loans. This means that lenders and special servicing outfits are now rebuilding and retraining those teams on how to navigate this process and what due diligence should be done to aid in their decision making, avoid potential liabilities, and minimize loss.

To learn more, read the full article.