With more than $700 Billion of CRE loans maturing between now and 2018, including more than $205 billion originated by CMBS conduit lenders, the greatly anticipated CMBS “wall of maturities” is finally here. At its peak in 2006-2007, CMBS lending accounted for nearly 30 percent of the entire commercial and multi-family debt sector.
At a recent CRE Finance Council conference in New York, CMBS special servicers recognized the need for stronger sponsorship and more equity to refinance out approximately 30-40 percent of the upcoming maturities. The best of the loans are paying off. The worst was likely already restructured or foreclosed, leaving small to mid-size loans with values hovering right at the loan balance.
The current unrest in CMBS forecasts originations to plummet to possibly 50 percent of its suggested 2016 volume of $100 billion. This market disruption has, and will continue to cause CMBS shops that entered the market in the past three years to close. Leaving only the strongest to originate and hold on a book until spreads reach a level of stability.
There is a combination of issues that will cause difficulty in refinancing for these borrowers. Partner and asset fatigue, ability to attract new partners, the cost of current capital during this time of unrest, and knowing which lender to go with are all obstacles borrowers might face. Last, and potentially the most serious issue, doing it all before the loan matures.
As CMBS 2.0 approaches and legacy loans payoff, the profit margins of 2.0 loan servicing will shrink, causing an unfavorable response to waiving any default interest or late fees from the special servicers. Negotiating a forbearance, DPO, or another loan restructure in advance of the capital event is necessary due to market or other factors.
The balance of the right equity, creative debt, and a timely payoff will be critical over the next 24 months.
Tanya Little is the founder and CEO of Hart Advisors Group LLC, a real estate advisory company that specializes in CMBS loan restructures and loan assumptions. Contact her at firstname.lastname@example.org.
Published in Commercial Real Estate | May 17, 2016