UCC Foreclosures Rise as Mezz Lenders Go After Distressed Projects
Deep-pocketed lenders like SL Green and CIM Group may soon be able to expand their real estate portfolios by taking over projects on the cheap.
Churchill Real Estate’s Justin Ehrlich has seen a lot during his time as a developer and lender in New York. He witnessed the collapse of the real estate market during the 2008 financial crisis, followed by the mad rush to build luxury condo towers in some of Manhattan’s swankiest neighborhoods.
But nothing compares to the past nine months, he said. “It’s not normal,” Ehrlich noted. “It’s the worst I’ve ever seen.”
He pointed to an unusual rise in Uniform Commercial Code foreclosures by mezzanine lenders, which he sees as a canary in the coal mine for a mound of distress expected to hit the market in the next year. While judicial foreclosures are still banned under an emergency order by New York Gov. Andrew Cuomo, UCC foreclosures on some high-stakes projects have been moving ahead in recent months since they can bypass state courts.
With one of the roughest years on record coming to a close, many have been waiting for their moment to jump on distressed properties. Now, mezz lenders — which provide junior debt on real estate projects — are increasingly initiating UCC foreclosures on some major developments in need of “rescue funding.”