Chetrit Group Selling Portfolio as $481M Default Looms

Chetrit Group is seeking to unload portions of a national portfolio of 43 properties encompassing 8,671 apartments that it acquired in 2019 in a transaction financed with a $481M CMBS loan from JPMorgan Chase.

According to a year-end report by Trepp, the mortgage for the portfolio entered special servicing in Q4 for majority default, an indication that Chetrit had failed to pay its lender the principal balance when the loan came due.

As of March 22, the portfolio had an occupancy of 76%, which hasn’t been high enough to pay the debt service on a floating loan rate pegged to Libor plus 5%, Trepp reported. The floating rate has nearly doubled the interest due on the loan.

Trepp’s report also said Chetrit is delinquent on a $225M mortgage for the Parkhill City apartment complex in Jamaica, Queens.

Chetrit purchased a portfolio of properties in 11 states spanning New York, the Sun Belt, Illinois, Indiana and Ohio from Bloomfield Hills, MI-based Roco Real Estate in a transaction valued at $573M the purchase price is adjusted at a loan-to-value ratio of 84%.

The default on the JPMorgan loan is not the first CMBS loan held on a Chetrit property to go into special servicing.

In 2021, a $177M CMBS loan Chetrit used to finance the acquisition in 2019 of 850 Third Avenue from the Chinese conglomerate HNA Group went into special servicing. Harbor Group International, which held a $25M mezzanine loan on the property, initiated a UCC foreclosure auction.

Chetrit was able to avoid the auction by refinancing the property with a $320M package from HPS Investment Partners.

Analysts may need to take a wait and see approach regarding whether the disclosure that Chetrit is in default heralds the arrival of what an anticipated a wave of such defaults as a combination of rising interest rates, higher financing costs and weaker balance sheet squeeze property owners.

While there no doubt will be more distressed assets emerging in Q1 2023, private equity funds who target distressed assets also need debt to fuel their transactions at returns priced into their deals.

If liquidity dries up across the board, it will be difficult to have a functioning distressed asset market, analysts say.