money_hundred dollar bills with magnifying glass_shutterstock_2241523095 800x315

According to Newmark, there is now a $2 trillion maturity wall of CRE loans facing banks over the next three years. A dizzying sum.

But the statement raises a question. When the size of the oncoming wall — or wave or lava flow, or whatever to call the coming flood — is mentioned, is anyone really sure of the size?

CRED iQ’s database at middle of December 2023 showed “approximately $210 billion in commercial mortgages that are scheduled to mature in 2024, with an additional $111 billion of CRE debt maturing in 2025. In total, CRED iQ has aggregated and organized a total of $320 billion of commercial mortgages slated to mature within the next 24 months.”

In February 2024, the Mortgage Bankers Association said that 20% of commercial and multifamily mortgage balances were to mature this year.

“Twenty percent ($929 billion) of the $4.7 trillion of outstanding commercial mortgages held by lenders and investors will mature in 2024, a 28 percent increase from the $729 billion that matured in 2023, according to the Mortgage Bankers Association’s 2023 Commercial Real Estate Survey of Loan Maturity Volumes,” they wrote.

Even discussions can be misleading. Take the Financial Times article. The headline is, “Banks face $2tn of maturing US property debt over next 3 years.” The immediate question becomes how much of banks’ portfolios are coming due? But to get there, it’s critical to see what the total holdings are.

According to the Federal Reserve’s “Assets and Liabilities of Commercial Banks in the United States,” also known as H.8, thetotal of commercial real estate loans, including multifamily, held by banks was $2,985.5 billion during the week of March 20, 2024. Given the timelines of loans, most frequently five-year cycles, a 20% turnover annually is a realistic estimate. But a $2 trillion count would be two-thirds of all bank loans, which doesn’t seem plausible. contacted Newmark for some clarity. The firm responded with information from David Bitner, Newmark’s executive managing director and global head of research. Here are his points:

  • “The $2T figure should indeed refer to ALL CRE loans (including 5+ unit multifamily).”
  • “Bank maturities are the largest share of near-term maturities, which is a large part of why we focus on them.”
  • “Debt fund and CMBS/CRE CLO debt is also front-loaded.”
  • “Data comes from Mortgage Bankers Association latest Loan Maturities report (released in mid-February).”

So, the pool of loans is much larger than those held only by banks. Even with the “extend and pretend” treatment lenders seeking to keep losses off their balance sheets, eventually reality sets in. In one sense, it won’t matter who holds the loans. As accounting standards eventually force lenders to write off clear losses, the result would be a large exercise in mark-to-market, lowering the value of many if not all CRE loans.

That would hurt the total asset values of many banks, which is the condition that led to the closures of Silicon Valley Bank, First Republic Bank, and Signature Bank last year. As Gosin told the FT, such a result would force some banks “to liquidate their loans or find other ways to reduce their weight in real estate,” whether by finding ways to increase capital, offload the risk, or further reduce the amount of CRE lending they do.


Source:  GlobeSt.

house with calendar_shutterstock_1806105649 800x315

The Mortgage Bankers Association has revised upward its estimate of debt maturing in 2024.

Because of the number of extensions and modifications that lenders have been granting borrowers in the past few years, the amount of CRE mortgages maturing this year is expected to increase from $659 billion to $929 billion.

“The lack of transactions and other activity last year, coupled with built-in extension options and lender and servicer flexibility, has meant that many loans that were set to mature in 2023 have been extended or otherwise modified and will now mature in 2024, 2026, 2028 or in other coming years,” said Jamie Woodwell, head of commercial real estate research at MBA.

This new estimate expands the universe of potential distress that could enter the market. At the same time, though, the increase in maturities this year could also have the unexpected consequence of generating more price transparency in the market. The uncertainty surrounding interest rates and questions about property values and fundamentals have led to fewer sales and financing transactions. However, the mortgages due to mature in 2024 and clarifications in other areas should help break up congestions in the markets.

The CRE loans maturing this year vary both by investor type and property type. For instance, just $28 billion, or 3 percent, of the outstanding balance of multifamily and healthcare mortgages either held or guaranteed by Fannie Mae, Freddie Mac, FHA, and Ginnie Mae will mature in 2024. In addition, life insurance companies will see $59 billion, 8 percent, of their outstanding mortgage balances mature in 2024. However, $441 billion, or 25 percent, of the outstanding balance of mortgages held by depositories; $234 billion, 31 percent, in CMBS, CLOs, or other ABS; and $168 billion, 36 percent, of the mortgages held by credit companies, in warehouse, or by other lenders, will mature this year.

In terms of property type, 12 percent of mortgages backed by multifamily properties will mature in 2024. Also, 17 percent of mortgages backed by retail and 18 percent backed by healthcare properties will mature this year. In addition, 25 percent of loans backed by office properties will come due in 2024. Finally, 27 percent of industrial loans and 38 percent of hotel/motel loans will mature this year, as well.


Source:  GlobeSt.


yellow default button on keyboard_canstockphoto110189794 800x315

Delinquency rates for mortgages backed by commercial and multifamily properties increased during the third quarter of 2023, according to the Mortgage Bankers Association’s (MBA) latest commercial real estate finance (CREF) Loan Performance Survey. The delinquency rate for loans backed by commercial properties has now increased for four consecutive quarters.

At. 5.1%, “the delinquency rate for loans backed by office properties now exceeds those of loans backed by retail and hotel properties, while the delinquency rates for multifamily and industrial property loans remain below 1%,” said Jamie Woodwell, MBA’s head of commercial real estate research. 

He continued, “Commercial property markets are working through challenges stemming from uncertainty about some properties’ fundamentals, a lack of transparency into where current property values are, and higher and volatile interest rates. The result has been a slow and steady uptick in delinquency rates, concentrated among loans facing more of those challenges.” 


Source:  Connect CRE

parking meter_expired_canstockphoto1601865 800x533

An exponential increase in the cost of interest-rate caps—insurance that CRE borrowers with floating rates purchase to hedge against rate increases—may soon spawn a wave of property sales in an increasingly distressed market.

In 2019, the Mortgage Bankers Association estimated that up to one-third of all commercial property debt was floating rate, with most lenders requiring that borrowers hedge against an increase in the borrowing costs.

When interest rates were low, derivative contracts offering hedges on multimillion-dollar mortgages could be purchased for as low as $10K. Now—as the lion’s share of these insurance contracts are expiring—the cost of rate-cap hedges is as much as 10 times higher that it was a year ago, according to a report in the Wall Street Journal.

Few buyers who opted for floating-rate loans when borrowing costs were low anticipated they were going to have to rebuy a cap at the same time interest rates are peaking, the report said.

According to Michael Gigliotti, co-head of JLL Capital Markets NYC office, many property owners may not have the liquidity to pay the increased insurance costs. Gigliotti told WSJ he expects a surge in property sales this year from owners who chose to unload their assets rather than spend millions on a new rate cap.

“This is the margin call on the real estate industry,” Gigliotti said, warning that a flood of properties going on the block to avoid increased rate cap costs could turn into what he called a “first trigger” pushing down real estate values.

Interest rate caps typically enable a borrower to avoid paying additional interest rates beyond a fixed threshold. According to the WSJ report, speculative ventures, where investors acquire short-term, floating-rate debt to finance building renovations aimed at raising rents have the most exposure to the increased cost of rate-cap hedges.

Apartment owner Investors Management Group was cited as an example of the rate-cap conundrum facing property owners: in 2020, the firm took out a $24.4M loan on a 300-unit multifamily in San Antonio. The firm bought insurance that capped interest at 5%, with the hedge contract costing $22K.

The cap on the San Antonio apartment campus expires in September. The company estimates that purchasing a new two-year hedge will cost $1M—40% of the property’s annual net income.

Floating-rate mortgages on apartment buildings insured by Fannie Mae or Freddie Mac can require borrowers to put money into an escrow account to pay for a new rate cap when the old one expires.

A wave of property sales spawned by spiraling rate-cap costs would magnify an already intensifying credit crisis in commercial real estate. According to a new report from Bloomberg, almost $175B of global real estate debt already is distressed, four time more than any other sector in the global economy.

Rising interest rates and the accompanying economic downturn, which appears to be the overture of a looming recession, have created an expanding pipeline of potentially defaulting loans in an environment where property values and cash flows are under pressure in all global markets, Bloomberg reported.


Source: GlobeSt.