Commercial real estate names pressured; Office Properties, Anywhere Real Estate lower

By Cristal Cody

Tupelo, Miss., Feb. 21 – Junk and distressed commercial real estate names remained pressured in post-holiday secondary bond trading.

Office Properties Income Trust’s bonds softened on Wednesday with the paper trading mostly lower in back-to-back sessions.

The 3.45% senior notes due 2031 (Caa1/CCC) dropped 2 3/8 points on Tuesday and declined over 2 more points on Wednesday.

Anywhere Real Estate Inc.’s notes moved lower at the start of the session and continued to decline with the paper among the most pressured issues seen during the session, a source said.

The 5¾% senior notes due 2029 (B3/CCC+) fell over ½ point by the close.

Meanwhile, bankrupt WeWork Inc.’s 5% senior notes due 2025 are still active and in the single digits, but only a few trades have been seen so far this year, a market source said.

The bonds from the office share company that set off a wave of real estate concerns after its bankruptcy filing last year traded on Wednesday unchanged but down 1½ points from January.

Commercial real estate has faced tighter lending standards from banks in 2024, which now no longer account for the majority of loans, according to a Feb. 15 report from KBRA.

Nonbanks now account for 50% of commercial real estate lending and 79% of residential real estate, KBRA said.

According to the Federal Reserve’s quarterly senior loan officer opinion survey, banks are still tightening credit underwriting standards but not as aggressively as in 2023.

“Starting with commercial and industrial loans, the vast majority of banks, more than 80%, have not changed their underwriting standards in Q4, although those that did tightened,” KBRA said. “Not surprisingly, commercial real estate lending saw more pronounced tightening.”

Overall tone over the day was mixed following the release of the minutes from the Federal Reserve’s January monetary policy meeting with recent strong economic data suggesting rate cuts are off the table for the near term.

“The January FOMC minutes reinforced our view that the Fed will take a cautious approach to cutting rates,” according to a BNP Paribas Securities research note on Wednesday. “We still expect the cutting cycle to start in June.”

The S&P 500 index rose 0.13%, while the Nasdaq dropped 0.32%.

The benchmark 10-year Treasury note yield rose 5 basis points to 4.32%.

The iShares iBoxx High Yield Corporate Bond ETF fell 14 cents, or 0.18%, to $76.93.

Measured market volatility was lower on the day with the ‘Fear Factor’ index, or the CBOE Volatility index, down 0.52% to 15.34.

Office Properties softens

Office Properties Income Trust’s bonds softened on Wednesday with the paper trading mostly lower in back-to-back sessions, a source said.

The 3.45% senior notes due 2031 had dropped 2 3/8 points on Tuesday and fell over 2 more points on Wednesday to a 44 bid handle.

Office Properties Income Trust’s 4½% senior notes due 2025 (Caa1/CCC) traded up nearly 1/8 point on Tuesday but went out Wednesday more than ¾ point lower at around 82 bid.

The Newton, Mass.-based issuer is a national real estate investment trust with 152 properties in its portfolio of owned and leased office and mixed-use properties in U.S. markets.

Anywhere Real Estate dips

Anywhere Real Estate Group LLC’s 5¾% senior notes due 2029 were down more than ¼ point in early trading on Wednesday before the issue softened further by the close, a source said.

The bonds were quoted trading down more than ½ point on a 73 bid handle.

The issuer’s credit default swap spreads also have been weaker and widened over 30 bps in the prior week, Moody’s Investors Service said.

Anywhere Real Estate in the prior week reported an 18% decline in fiscal 2023 revenue and a net annual loss of $97 million, improved from a $287 million loss a year earlier.

The issuer was under pressure back in the fall after a court ruling against the National Association of Realtors and some real estate companies over inflating brokerage fees.

Anywhere Real Estate announced on Oct. 6 that it agreed to pay an $83.5 million settlement to resolve all claims in the litigation without admitting liability. Final court approval of the settlement is expected by midyear.

Brands in the Madison, N.J.-based real estate services company, formerly known as Realogy, include Coldwell Banker, Century 21, Corcoran, Sotheby's International Realty and Better Homes and Gardens Real Estate.

WeWork unchanged

WeWork’s 5% senior notes due 2025 traded Wednesday flat in thin supply at 3 bid, a source said.

The bonds have declined in February from trading at 4½ bid at the start of the year.

The New York-based office share company filed for Chapter 11 bankruptcy on Nov. 6 and has entered into a restructuring support agreement with investor SoftBank Group Corp. and holders of about 92% of the company’s first-, second- and third-lien notes.

Distressed returns up

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns opened the holiday week stronger after finishing Tuesday at 0.37%, up from 0.01% on Friday and negative 0.94% in the same session a week ago.

Month-to-date total returns hit 1.48% on Tuesday, up from 1.1% on Friday and 0.5% in the week-ago session.

Year-to-date total return losses improved to minus 0.71% on Tuesday versus negative 1.08% on Friday and negative 1.66% on the same day a week ago.

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