Strategies For Surviving The Wall Of Loan Maturities
The commercial real estate sector is facing an imminent surge in loan maturities.
With $5.9 trillion in commercial real estate debt currently outstanding, more than half of that total is set to mature within the next three years. In a typical market, this would represent a significant opportunity for lenders, but high interest rates and broader economic challenges mean that many borrowers will struggle to refinance as these loans come due.
However, borrowers have a range of options available, according to Ann Hambly, founder and CEO of 1st Service Solutions. She emphasizes that understanding these options is critical to navigating the upcoming wave of loan maturities.
Understanding Your Options
Many borrowers mistakenly believe they only have two choices when faced with a loan maturity: pay off the debt in full or hand the property back to the lender. In reality, Hambly explains, there are several other avenues borrowers can explore. These include extending the loan with additional capital, modifying the debt terms, raising funds, seeking a new loan, or even selling the property.
To properly evaluate these options, Hambly recommends working with a debt advisor. A skilled advisor, who is active in the market and familiar with all available solutions, can guide borrowers through the various possibilities.
“A good debt advisor is in the trenches every day,” says Hambly. “They can offer a full range of solutions tailored to the borrower’s specific situation, allowing the owner to make a more informed decision.”
Plan Ahead: Start Early
When it comes to finding the right solution, Hambly advises borrowers to begin the process at least a year before the loan matures. “We run financial models to evaluate different options, and it often takes time for the property owner to fully understand the best course of action,” she notes. If the potential solutions involve selling the property, raising capital, or securing a new loan, borrowers will need time to conduct due diligence on those options as well.
While some borrowers wonder whether it’s ever too late to explore their options, Hambly stresses that it’s never too late to start. “That said, being proactive and starting early is always the best strategy.”
Lenders Are Motivated to Negotiate
With over $3 trillion in commercial real estate loan maturities looming through 2028, borrowers aren’t the only ones feeling pressure. Lenders are also facing the challenge of managing maturing loans, and they are eager to avoid a flood of defaults. While borrowers have multiple ways to address their maturing debt, lenders are generally limited to two options: work out a deal with the borrower or take the property back.
“When an owner comes to the table with a feasible resolution, the lender needs to assess whether they are likely to come out better with the borrower’s solution or by taking the property,” Hambly explains. If the borrower presents a compelling enough solution, even if it means the lender incurs some loss, they may be willing to strike a deal.
In short, the current market conditions create both challenges and opportunities. Borrowers who are proactive, informed, and open to exploring a variety of options can navigate the upcoming wave of loan maturities more successfully, while lenders are equally motivated to find workable solutions that avoid defaults. By working with the right experts, borrowers can maximize their chances of securing a favorable outcome as their loans come due.
Source: GlobeSt.
