The commercial real estate (CRE) industry is an essential component of the economy, contributing to job growth, consumer spending, and overall economic expansion. However, the industry is also highly leveraged, with many CRE investors relying on debt financing to acquire and maintain their properties. This reliance on debt has led to a significant amount of commercial real estate debt coming to maturity in the next two years, creating potential challenges for investors and lenders alike.
According to a recent report by Trepp, a leading provider of data, analytics, and technology solutions for the commercial real estate finance industry, over $300 billion of commercial mortgage-backed securities (CMBS) loans are scheduled to mature in 2022 and 2023. This staggering amount of maturing debt represents a significant challenge for the industry, particularly in the context of the ongoing COVID-19 pandemic. Additionally, our team just attended an economic outlook from Red Shoe Economics that stated $1.5Trillion of CRE debt is maturing in the next 18 months, and $3Trillion is scheduled to mature in the next 2.5 years!
The pandemic has had a profound impact on the commercial real estate market, with many properties experiencing reduced occupancy rates and declining cash flows. As a result, lenders and investors have become increasingly cautious, making it more challenging for borrowers to refinance their loans. This caution is particularly evident in the CMBS market, where lenders have become more selective in the loans they underwrite, and investors have become more hesitant to invest in the securities.
The maturing CMBS loans present a significant challenge for investors, particularly those who acquired properties with debt financing before the pandemic. These investors face the prospect of refinancing their loans in a market that is more challenging and less predictable than it was just a few years ago. In many cases, refinancing may not be possible, leaving investors with the difficult decision of selling their properties or defaulting on their loans.
At the same time, the maturing CMBS loans also present a challenge for lenders. While many lenders have been willing to work with borrowers to modify their loans and provide relief during the pandemic, they may be less willing to do so in the context of maturing loans. Lenders may be more inclined to enforce their rights under the loan documents, which could result in more foreclosures and distressed sales.
So what does this mean to you? Know your bank and if they can survive this new wave of stress testing - if you are considering selling, it might be a good time as the next two years will potentially have a significant impact on values - and if you have cash there may be incredible opportunities to expand your portfolio in the near term. Contact us today with any questions or if you would like to discuss opinions on this changing market.
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