The swift collapse of Silicon Valley Bank earlier in March put a spotlight on potentially painful losses lurking in commercial-real-estate loans on their books.
It also sparked debate over what piles of older loans on commercial properties might be worth now that low interest rates and peak real-estate prices have vanished, and as stress in the banking system makes credit more scarce.
The regulators at a $16.5 billion discount, which pencils out to about 77 cents on the dollar, offers a glimpse into a new clearing price for commercial-real-estate loans.
“The way I look at it is: [that] the Silicon Valley Bank trade created a baseline for the market,” David Blatt, chief executive at CapStack Partners, a credit fund that buys commercial-real-estate loans from banks and originates short-term bridge loans and mezzanine debt.
“To me, that’s the top end, not the bottom end, for commercial-real-estate loans,” said Blatt, who studied the bank’s loan exposure.
Unlike stocks or bonds, loans in the estimated $5.5 trillion commercial-property market don’t sell in a transparent way, which means pegging their values can be difficult.