While a majority of America is keenly aware of the housing bubble, and at least somewhat familiar with the unraveling of the European Markets, little energy is being focused on what may very well be the nation’s next looming fiscal crisis: the large volume of commercial real estate debt maturing over the next seven years.
According to Trepp, a provider of CMBS analytics and data to the securities and investment management industry, there will be more than $2 trillion of commercial real estate loans maturing by 2017. It’s estimated that half of them are “underwater.” This of course means that fully $1 trillion in commercial real estate loans will mature without a clear refinancing strategy. These loans will not be refinanceable at existing debt levels, due to a decrease in underlying asset value, and today’s lending standards are much tighter than those of the middle 2000s, which further compounds the problem.
The lenders holding these overvalued loans will seek to either (1) right-size the loan balance at maturity through a large equity injection by the borrower (if an extension is even entertained), (2) foreclose on the loan and sell the underlying collateral, or (3) sell the loans at the maximum price attainable (oftentimes at a discount to the par value). In each of these resolutions, there will be significant opportunity for borrowers and third-party buyers alike to purchase real estate or real estate debt at significant discounts to legacy value.
Read more...The Coming Storm: $2 Trillion in CRE Loan Maturity Presents the Next Fiscal Cliff | NREI Readers Write
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