Wells Fargo & Co. and LNR Property Corp. are each seeking to sell about $1 billion of distressed U.S. commercial real estate loans and assets, according to people briefed on the offerings.
Wells Fargo of San Francisco, the biggest U.S. commercial real estate lender, is taking bids on $500 million to $1 billion of office and hotel mortgages and properties, said four people, who asked not to be identified because the sale is private. LNR, the largest special servicer of commercial mortgage-backed securities, is trying to sell about $1 billion of defaulted loans, two people said.
“The availability of capital and better prices than a year ago are driving sellers to move things off their balance sheets,” Matthew Anderson, managing director at research firm Foresight Analytics, said in an interview. “Depending on how the auction goes, you may see more of this.”
U.S. banks and special servicers hold about $185 billion in distressed loans, according to the Oakland, California-based firm. Wells Fargo had $12.9 billion in nonperforming commercial property loans in the first quarter, the firm said, while LNR is the special servicer on $24 billion of delinquent assets, according to data compiled by Bloomberg.
Financial institutions were saddled with real estate debt after the global credit crisis and recession sent U.S. commercial property values down 42 percent from the October 2007 peak, making it difficult for owners to sell properties or refinance their loans. When commercial mortgages are packaged into securities, a special servicer is assigned to manage the assets and help direct a restructuring if the loans become troubled.
Well Fargo inherited most of the assets it’s trying to sell from Wachovia Corp., the Charlotte, North Carolina-based lender it purchased in October 2008, said two of the people. Wachovia’s loans make up about 60 percent of the combined company’s nonperforming total, Anderson said.
Wells Fargo’s delinquent commercial loans, or those more than 30 days past due, almost doubled to 12 percent of loans in the first quarter from a year earlier, and its nonperforming loans, or those more than 90 days late and not accruing interest, more than doubled to 9.4 percent, data compiled by Bloomberg show.
A sale would reflect an improved market for the most troubled real estate assets, said Ben Thypin, an analyst at researcher Real Capital Analytics Inc. in New York. Private-equity real estate funds, which have $80 billion to invest, are optimistic that transactions will pick up, London-based researcher Preqin Ltd. said in an April 30 report.
“Until now the major banks haven’t had an incentive to sell off loans they absorbed during the crisis,” Thypin said.
Eastdil Secured, the real estate investment bank owned by Wells Fargo, is advising Wells Fargo and LNR Partners on the sales, said two of the people.
Elise Wilkinson, a spokeswoman for Wells Fargo, referred questions to Eastdil. Martha Wallau, a senior managing director at Eastdil in New York, declined to comment, as did Jen Brown, a spokeswoman for LNR.
“We’re certainly aggressive in terms of liquidating the portfolio,” David Hoyt, head of Wells Fargo’s wholesale-banking business, said at May 14 meeting of investors, according to a transcript. “At the moment there is a lot of liquidity in the market to resolve problems.”
Wells Fargo may be trying to sell the loans to offset profits in other areas, according to Gary Mozer, principal at George Smith Partners, a real estate investment firm in Los Angeles.
“This way they get to clean up their balance sheet at the same time,” Mozer said in an interview.
LNR, based in Miami Beach, Florida, is the special servicer on $181 billion of securitized real estate debt, according to Bloomberg data. The loans it has up for sale average $3 million and are all in default, one of the people said. They are on office and retail properties, mobile homes and apartment buildings.
The firm’s plan to sell loans was reported by CRE News in March.
LNR, owned by Cerberus Capital Management LP, hired Lazard Ltd. to help restructure as much as $1 billion of debt, people with knowledge of the matter said on Jan. 14.