Specially Serviced Assets Keep Sliding in Value

Article originally posted on Globe St. on November 17, 2023

After a tough first half of the year for valuations, particularly among specially serviced properties, the third quarter of 2023 continued apace, according to a new report from CRED IQ.

As a reminder, the first half of 2023 was bad. CRED iQ reviewed 190 appraisals of major properties across all assets classes to determine the impact of current market conditions on asset values. Retail and office led the declines, with an average 41.2% valuation decline in $10 billion in assets. Retail was down 57% while office was on its heels at 48.7%. Other drops were 41.9% in mixed-use, 22.0% in multifamily, and 21.2% for industrial. The only good news in valuation was self-storage, which remained flat with no decline.

Now on to Q3. This time, CRED iQ looked at 480 properties that had repeat appraisals in 2023. The top 25 valuation drops got another reappraisal in the third quarter. Each property was either with a special servicer already or were delinquent.

The average valuation drop was 41.6%, which was four basis points higher than in the first half. The biggest category decline was in retail, at -51.7%, with office fairly close behind at -50.3%. Then came mixed-use at -42.2%. Multifamily was off by -33.6%, industrial by -32.0%, and hotel off by -29.9%. Manufactured housing did relatively well at only -5.0% and the best performing category, self-storage, remained flat.

Some of the biggest differences between the first half and third quarter valuation drops were multifamily (went from -22.0% to -33.6%), and industrial (-21.2% to -32.0%).

Here are some of the biggest examples of valuation falls in Q3:

  • 1740 Broadway, New York City — a 604,000 square foot office tower had a valuation loss of $430 million, or 71.1%, from $605 million to $175 million.
  • 229 West 43rd Street, New York City — the 248,457 square foot mixed use property lost $386 million, or 82.1% of its value.
  • Woodbridge Center: Woodbridge, New Jersey — the 1.1 million square foot mall was in this third position n the first half of 2023. Now its valuation is down $280 million, or 76.5%.
  • Nema: San Francisco, California — a 754-unit multifamily went from $543.6 million to $265.6 million, or 48.7%.
  • Park Place Mall: Tucson AZ — another mall, this time 478,333 square feet, dropped from $313 million to $87 million, or a 72.2% valuation loss. CRED iQ additionally pointed out that at its original valuation, the space was seen as worth $654 per square foot; now it’s $182 per square foot.