An immense amount of Commercial Real Estate (CRE) debt, which was largely created by the 2006-2007 lending craze, will mature over the course of the next 12 months. You know it’s serious when industry experts actually give this event a name – Wall of Maturities.
$300 Billion of CMBS loans will mature by the end of 2017
50% of these maturities are collateralized by Office and Retail
20% to 50% of these loans will face challenges when refinancing with conventional lenders
$183 Billion of CRE loans held by non-bank lenders (bridge and hedge funds) are set to mature
$11 Billion in Agency loans will come due over the next 12 months
$26 Billion in Life Insurance Company debt is coming due
$30 Billion of Credit Union debt will mature by the end of 2017
Most of the CMBS debt set to mature is collateralized by Retail and Office properties which suffer from vacancy issues or maturing leases resulting in substandard DSC/debt yield and an LTV in excess of lender expectations. It is projected that the CMBS market will only absorb 25% of the $300 Billion maturing. So the question is – who will Bridge the Gap?
The traditional lending sources such as regional banks, credit unions and insurance companies will take their fair share of the creditworthy assets. If you are fortunate enough to have a stabilized multi-family property, Freddie and Fannie are a terrific alternative, and the Agencies are open for business and being very aggressive.
The non-traditional lenders will be the sources of capital that step in to Bridge the Gap. Who are these lending sources? Each day we are introduced to another “Bridge Lender,” offering terms ranging from lows of 6% to highs of 14% to help alleviate the refinance pressure if the collateral is not quite stabilized at loan maturity for whatever the reason.
Progress Capital recently closed a $16 Million two-year bridge loan for a 300,000 SF retail center in Pennsylvania, which suffered partial fire damage just before the CMBS loan matured. The cash flow was still excellent, but a non-conventional loan was needed to Bridge the Gap during renovation. Progress also arranged a $68 Million construction loan with Procida’s 100 Mile Fund when borrower history prevented a bank from stepping up. Many prominent NYC real estate owners are selling assets and entering the lending market specifically to fill this gap, opting for yield instead of chasing low cap rate CRE.
What should you be doing NOW? 1) If you have a loan maturing in the next 12 months, pull out your loan docs to see what your options are regarding open prepayment windows and potential penalties upon maturity. 2) Compile an accurate rent roll with lease expirations and option periods, along with a 2016 Proforma of expenses. 3) Schedule an appointment with your finance consultant/mortgage broker to discuss your options.
At Progress Capital, we are meeting with and educating our clients on their rights and options as their loans are nearing maturity. Lenders are taking longer to make credit decisions, so it’s really important to stay ahead of the Wall of Maturities.
Kathy Anderson is the Founder of Progress Capital Advisors, a commercial mortgage banking firm that has closed over $40 Billion in commercial loans and directly funded more than $100 Million in interim financing.