Published on Tuesday, December 1, 2020

Many property owners have managed to keep loans current without seeking relief during the pandemic, but that doesnít mean they wonít fall into distress.


Donít judge a book by its cover. While some loans have shown immediate signs of distress during the pandemic, others that appear to be current could actually be on the brink of falling into default.† This has always been the case, of course, but pressures brought about by the pandemic is accelerating the trend.

The New York by Gehry, a 76-story, 900-unit apartment tower designed by Frank Gehry in Manhattan, is a prime example of a seemingly stable loan. According to research from Trepp, the property has stayed current on the $550 million loan backing the property, and it has not received additional relief funds; however, first-time servicer watch lists indicate that occupancy at the residential tower has fallen by more than 20% since last year.

As a result, the property has been placed on servicer watch lists this month, reducing the propertyís debt service coverage ratio. Last year, the property had a DSCR of 1.93 with occupancy at 98%. The latest data, however, reduced DSCR to 1.84 as occupancy fell to 74% this year. In 2014, the property collateral was valued at $1.1 billion.

It is highly likely that†the local rental market has something to do with the building's occupancy issues.

The apartment market in New York City has struggled through the pandemic with a nearly 6% vacancy rate equaling 16,000 empty apartment units, according to research from Douglas Elliman and appraiser Jonathan Miller. This is the highest vacancy rate in the least 14 years in New York City, and as a result, rents have begun to struggle as well. A report from StreetEasy shows that apartment rents in the market have fallen below $3,000 for the first time since 2011. In the third quarter, median rents fell to $2,990 and more than 44% of apartment listings on StreetEasy were discounted. Manhattan rents were discounted 9.1% on average, led by the Midtown district.

New construction deliveries are only compounding the problem. As demand has fallen in the market, 72,267 units of new supply came to marketóan increase of 30,000 units compared to 2019 deliveries.

New York rents began to fall almost immediately following the onset of the pandemic. By October, New York apartment rents decreased more than 15% during the pandemic, according to New York Rent Report from Apartment List. Year-over-year, rents in the city have fallen 17%. The rent depreciation is tied to reduced occupancy from many residents leaving the city, both permanently and temporarily. Apartment owners are expecting occupancy rates could fall between 10% and 20% this year as a result.