Lenders, Analysts Keeping Close Watch On CRE Portfolios in Energy Markets

Mark Heschmeyer for CoStar

Lenders say they are becoming more cautious in their lending approach on commercial real estate in energy-related markets following the rapid decline in the price of oil this winter, even as they confirm that supply and demand fundamentals remain in check as anecdotal evidence indicates the drop in the price of crude is cooling off formerly white-hot markets such as Houston.

Recent events include Houston-based Schlumberger Ltd., the world’s No.1 oilfield services provider, announced last week that it will trim 9,000 jobs, or about 7% of its workforce, to control costs in response to a continuing fall in oil prices.

Houston-based Halliburton Co. said it also made an undisclosed number of job cuts in Houston. Halliburton, which already planned to eliminate about 1,000 jobs as a result of its acquisition of rival Houston-based Baker Hughes Inc., noted the additional job cuts were made in response to market conditions and not the merger.

Analysts at Barclays said last week that oil companies could cut spending on exploration and production in North America by 30% or more this year if U.S. crude oil prices hovered around the $50-$60 per barrel range.

And in the first sign that the plunge in oil prices is beginning to affect commercial real estate lending, a 2014-vintage loan secured by two Houston multifamily properties became delinquent this month, according Morgan Stanley Research. Analyst commentary regarding the CMBS loan noted that the borrower had failed to make the October 2014 payment on the loan and had been sent a notice of default with Right to Cure letter. The loan LTV is 75%, which is in the top 3% of 2014 vintage loans with the highest LTVs.

Although lenders are paying closer attention to their Texas market portfolios, particularly in Houston, most agree the underlying local economies remain strong.

“We are paying attention to our real estate portfolios in those geographies so that’s going to be overall sector on geographical differences and how this plays out,” said Marianne Lake, chief financial officer of JPMorgan Chase & Co.

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