Maturing Loans Head for a Troubled Market
A potential recipe for disaster is brewing in the commercial real estate market, according to a new report from research firm Foresight Analytics. An extremely tight credit market coupled with $814 billion in maturing loans over the next three years could prove to be a toxic mix that delays recovery and puts downward pressure on valuations.
Latest News
Most Popular Articles
advertisement
“We broadly see two scenarios,” says Matt Anderson, a partner with Oakland, Calif.-based Foresight Analytics LLC. “The one that we're currently most biased toward is to envision that there will be quite a bit of distress out there.” One impact of the distress would be the growth of defaults and foreclosures. The rising defaults, ironically, would remove some of the future pressure on maturities.
The second scenario is that lending capacity would be enough to avoid high levels of distress, says Anderson. “If there is enough capacity out there to keep the existing inventory afloat for a while, the dollar amount of loans maturing will really soak up so much of the capacity of the market that there will be very little net new growth for the next decade.”
If this distress does not materialize or is more moderate, Foresight Analytics anticipates that the commercial real estate debt market will show minimal growth for the next decade.
A wave of refinancing activity already has begun to crowd out new loans. An estimated 80% of originations in 2008 were refinanced mortgages compared with roughly 35% from 2000 to 2007. “We expect that proportion to be very high, approximately 80%, for several years to come where the market most likely will be treading water,” he says.
This year, an estimated $250 billion in commercial loans is expected to mature. With liquidity already scarce, many portfolio lenders have been kicking the can down the road with temporary one-year extensions on 2009 maturities.
While these short-term loan extensions are relieving some of the strain on the current debt market, they will add to the maturities that come back for refinancing in 2010. Anderson estimates that these one-year extensions represent more than a third — if not more — of the refinancing activity this year.
The pivotal year will be 2011. A total of $296.2 billion in loans originated by banks, commercial mortgage-backed securities (CMBS) lenders and life companies is projected to come due in 2011. The amount of loans made in the boom years of 2006 and 2007 that will mature at that point shoots up to $85 billion.
“It's concerning because it was the most aggressive lending [period], and there's no CMBS lender to step in and replace those loans,” says Anderson.
CMBS loans also will be adding to the total maturities. “In the near term, the [CMBS] dollar amounts that we estimate maturing range from $45 billion to $55 billion per year from 2009 to 2011.”
Just how big the lending shortfall will be is tough to quantify. “In today's environment, if the banks stop lending or stop growing, then we know we're in some trouble in terms of the shortfall,” says Anderson.
Acceptable Use Policy blog comments powered by Disqus
Want to use this article? Click here for options!
© 2012 Penton Media Inc.
advertisement
Photo Galleries
New York's Star Deals
The city that never sleeps is also the city that never stops growing, not even in the midst of recession. And deals, both bold and unprecedented, continue to be done. Check out image of New York's big deals.
Hudson Yards Development
Check out images for Coach's new global headquarters, which will anchor the initial tower of the Eastern Rail Yards site within the 26-acre mixed-
Videos
JLL at ICSC 2012
Check out these videos from JLL at ICSC 2012 in Las Vegas...
Click here to view more videos.
advertisement
Blogs
![]() |
Real Vox |
![]() |
Traffic Court |
![]() |
The Full Nelson |
Events
![]() |
|---|
Strategic Real Estate Investment ConferenceDate: Thursday, June 7, 2012 Click here to view more events... |
This Week's Most Popular
Current Issue
|
|









