Relics of the last property crash start to wobble again

financialpost.com:

CityPoint, a 36-story office building in London’s financial district, became one of the symbols of the financial crisis when a Beacon Capital Partners Inc. fund missed a payment on loans secured by the property just over a decade ago.

As the turmoil receded, Brookfield Asset Management Inc. eventually took over the tower. Now, the rise of work from home and surging interest rates mean Bank of America analysts are warning that a default on loans linked to the property is likely.

The building isn’t alone in facing a wobble having become tangled up in problems after the 2008 crisis. An office complex in Frankfurt and towers in New York are also running into difficulties again.

The various troubles highlight how low borrowing costs led many investors to become comfortable holding properties with a tarnished history, betting it would be different this time.

But now, many large occupiers are focused on the best quality buildings and the relics of the last crash are struggling to hold their value. Morgan Stanley analysts forecast that U.S. commercial real estate prices will fall by more than they did in the financial crisis.

“The low cost of debt due to quantitative easing has led to the same property value expansion as observed during the previous cycle,” said Nicole Lux, a senior fellow at Bayes Business School whose research areas include real estate finance. “Lenders and investors now have to admit that they are facing the same refinancing issues for their properties.”

Brookfield is initiating discussions for an extension of the debt and is confident it will be repaid in full when the building is eventually sold, according to a person with knowledge of the matter. It has a plan to boost leasing in the near term and has