New Businesses Launch in Anticipation of Distressed Office Assets

More than $500 billion of office debt maturities are anticipated to come due in the next three years. At least two firms announced plans this week to support those caught up in the challenging interest rate environment coupled with increased capital costs and declining operating fundamentals.

Morning Calm is raising rescue capital for struggling office landlords.

It has formed the Morning Calm Office Finance, a $500 million joint venture with a global investment manager.

MCOF will provide high-quality office owners and investors with flexible financing solutions, helping them to navigate the evolving market environment.

In a statement, the company said that MCOF will “help fill the massive capital void resulting from big and regional banks, life companies, and debt funds pulling back on office lending.”

It will originate and acquire structured office debt investments including senior and mezzanine loans, B-notes, and preferred equity.

MCOF will invest in the top 30 MSAs, focusing on Class A office properties in high-barrier markets supported by strong fundamentals. Loan sizes will range from $25 million to $100+ million.

In a statement, Morning Calm Management projects $566 billion of office debt maturities coming due over the next five years.

Lenders Quickly Realizing ‘They Need a Plan’

Broad Street Development launched a new consulting arm called Paradigm Advisory Group with the goal of protecting the value of distressed real estate assets in New York City on behalf of lenders, borrowers, and special servicers.

The company, founded by BSD principals Raymond Chalme and Daniel Blanco, expects to see $30 billion of loans maturing on office property in New York and intends to support those caught up in the challenging environment.

“Lenders in particular are realizing they quickly need a plan, especially in an era when values may be in doubt, rates are rising, and capital structures have grown more complex and involve multiple parties,” Chalme said in a prepared statement.

“Our role will be to guide our clients through the rapidly evolving market, advising on all aspects from financial restructuring to property operations to development execution.”

These companies may have to wait to put their services to work given that Wells Fargo CFO Michael Santomassimo told CNBC on Friday that he hasn’t seen any systematic distress in commercial real estate, including the office sector. However, he does expect to see some stress play out over an extended period of time.