- Balloon default risk remains an issue from highly seasoned transactions as loans are unable to payoff as scheduled. In many cases, collateral properties that have otherwise generated adequate / stable cash flow results are not able to refinance their balloon payment at maturity, due mostly to a lack of refinance proceeds availability.
- Declined commercial real estate values and diminished equity in collateral properties continues to prompt more struggling borrowers with marginal collateral performance to claim imminent default and ask for debt relief. The aggressive pro-forma underwriting on loans originated from 2005 through 2008 vintage transactions, comingled with extinguished debt service / interest reserves required at-issuance, has led to an increasing number of loans with an inability to meet debt service requirements from in-place cash flow.
- Despite some signs of recent optimism, a cautious outlook for the hotel sector remains as many sizeable hotel loans from 2005-2008 vintage pools have had to significantly lower rates to maintain an acceptable level of occupancy across the country and in some cases have experienced severely distressed net cash flow performance as a result.
- Increased interest for vacant retail space and pent-up demand may fuel a recovery for the sector. Multifamily statistics have also shown that decreased concessions and a rise in rents in some markets may ultimately lead to improved cash flow performance, if supply remains limited. In many office markets, rents could potentially reset with hopes of growth as we enter 2011.
Source: Realpoint LLC