Wave of Commercial Mortgage-Backed Securities (CMBS) Maturities on the Horizon
We are fast approaching the ten-year anniversary of the previous peak of the commercial real estate market; this means that a wave of commercial real estate originally financed with 10-year, mortgage-backed securities is about to mature. But the 2017 real estate market is completely different from the one in which these securities were issued, and many properties will be unable to refinance their loans using the same instruments they used in 2007.
The scope of this problem is large. Although some properties have already managed to refinance their mortgages, as much as $100 billion worth of securities is expected to come due this year. In many cases, these securities were issued under economic assumptions that predate the Great Recession. That has left the properties backing those securities performing below their pre-2007 expectations.
This is particularly true in the retail and office space sectors, which have weathered a challenging 10-year period. As a result, these sectors are seeing higher loan-to-volume ratios relative to other real estate sectors, making refinancing those mortgages even more challenging.
With so many underperforming loans about to flood the market at once, alternative lending sources are poised to become increasingly valuable to borrowers over the next year. Direct private money portfolio lenders will be stepping in to fill the void left by traditional CMBS lenders. In many cases, these lenders will be able to provide borrowers with greater financing flexibility and faster approval processes than they’re able to receive from their current lenders.