Post-Crisis Losses Hit Top-Rated Commercial Real Estate Bonds: What Investors Need to Know

If you have lost money in the stock market due to fraud, misrepresentation, negligence, or for other reasons, we can help you. We have successfully recovered over $250 million in FINRA securities arbitrations.*

Need Legal Help? Contact Us. Call +1 (888) 997-9956
Updated on: June 11, 2024

KT Law Investigates How Market Distress is Impacting Commercial Mortgage-Backed Securities

National investment loss lawyers KlaymanToskes reports that for the first time since the financial crisis, investors holding high-grade bonds backed by commercial real estate debt are experiencing losses. Earlier this month, buyers of the AAA portion of a $308 million note, secured by the mortgage on the 1740 Broadway building in Midtown Manhattan, received less than 75% of their original investment after the loan was sold at a substantial discount. According to Barclays Plc, this marks the first such loss since the crisis. All five groups of lower-ranking creditors lost their investments completely.

Market experts suggest that the impact reaching top-tier holders, despite the safeguards meant to ensure full repayment, highlights the severe distress in parts of the US commercial real estate market. Bonds backed by single mortgages tied to older office buildings with a primary tenant, such as 1740 Broadway, are particularly at risk. Some analysts foresee further losses as more loans are sold for a fraction of their previous value. Analysts at Barclays have warned that other AAA bonds are likely to incur losses following this initial hit, indicating that the commercial real estate market may be nearing a low point.

With around $700 billion of non-agency commercial mortgage-backed securities (“CMBS”) and another $3 trillion of commercial mortgages on bank balance sheets, even a slight increase in losses could burden the financial system for years. While no one anticipates a repeat of the 2008 crisis, where bad residential mortgages nearly collapsed the financial system, the risk extends beyond a few underperforming buildings.

In April, the delinquency rate for office loans packaged into a common type of commercial mortgage-backed security reached 6.4%, the highest since June 2018, according to a Moody’s Ratings report. Additionally, KBRA Analytics reported that as of March, about $52 billion, or 31%, of all office loans in commercial mortgage bonds were troubled, up from 16% a year earlier. This includes both single-asset single-borrower and conduit CMBS, where mortgages are pooled together. Some cities are experiencing more stress, with 75% of CMBS office loans in Chicago and 65% in Denver at risk, according to the firm. Experts from Keen-Summit Capital Partners have reported that property values have dropped due to rising interest rates and decreasing cash flow, leading to significant losses for equity holders and impairments for secured debt holders. 

The 1740 Broadway building, formerly known as the Mutual of New York or MONY building, is located just south of Columbus Circle between 55th and 56th streets. Built in 1950, the letters that once topped the building inspired the title of the 1968 hit song “Mony Mony” by Tommy James and the Shondells. In 2014, Blackstone Inc. purchased the building for $605 million. To help finance the deal, the firm took out a $308 million mortgage, which was packaged into a CMBS and acquired by companies like Travelers Cos. and Endurance American Insurance Co. 

In 2021, L Brands, the former parent company of Victoria’s Secret and Bath & Body Works, which occupied 77% of the building’s leased space, announced it would leave the tower. Despite Blackstone investing tens of millions of dollars to modernize the building, the tepid demand for office space made it challenging to find new tenants. With no rent income, Blackstone abandoned the property in 2022, defaulting on the loan.

Protecting Your Investments: How KlaymanToskes Assists in Financial Recovery

With delinquency rates and troubled loans on the rise, investors need to remain vigilant and consider seeking legal advice to understand their rights and their options for financial recovery in these challenging times. As the commercial real estate market experiences significant distress, the safeguards that once protected high-grade bondholders are now proving insufficient. This situation could lead to substantial financial losses for many investors.

Engaging the services of an experienced securities attorney to evaluate your specific circumstances is strongly advised. At KlaymanToskes, our team of experienced securities attorneys has a deep understanding of this complex area of law, allowing us to provide invaluable insight and tailored guidance that directly addresses your individual needs.

If you suffered investment losses due to unsuitable advice by your brokerage firm/financial advisor, or have concerns regarding your investment portfolio, contact KlaymanToskes at 888-997-9956 or fill out a short contact form for a free and confidential consultation to discuss your recovery options.

About KlaymanToskes

KlaymanToskes is a leading national securities law firm which practices exclusively in the field of securities arbitration and litigation on behalf of retail and institutional investors throughout the world in large and complex securities matters. The firm has recovered over $250 million in FINRA arbitrations and over $350 million in other securities litigation matters. KlaymanToskes has office locations in California, Florida, New York, and Puerto Rico.


KlaymanToskes, P.A.
Lawrence L. Klayman, Esq.