- An estimated $733.2 billion of commercial real estate loans will come due in 2027, according to Trepp, after roughly $800 billion this year. The 2027 total is about 8% smaller (Lumida calculation), but it will have to be refinanced at today’s much higher rates.
- Lenders are pulling back on the extensions and modifications they offered while waiting for rates to fall. “The extend and pretend party is over,” said Richard LeFrak, executive chairman of the LeFrak Organization, adding that banks are getting more aggressive about selling loans or disposing of assets.
- Office and multifamily are under the most pressure, with the CMBS office delinquency rate hitting 12.16% in September, though office occupancy and valuations are now recovering. Multifamily owners who refinanced in 2021 and 2022 would now pay about twice their original rates, and Rastegar Capital’s Ari Rastegar said a bridge loan that started around 4% is now at about 9%.
- Distress is creating opportunities for buyers, with Trepp’s Lonnie Hendry expecting more realized distress and loan losses that let investors acquire assets at attractive valuations. Rastegar is preparing for “a massive buying opportunity,” but Morgan Properties’ Jason Morgan said transactions have stalled because sellers are unwilling to accept lower prices.
What Happened?
A large wall of commercial real estate debt is coming due now and over the next two years, and elevated interest rates will make refinancing far more expensive, CNBC reported. Trepp estimates $733.2 billion of loans mature in 2027. Borrowers will need to put in more equity because rates are higher and rents are lower, reducing property values. Some are choosing cheaper, shorter-term financing, which pushes the problem out a few years.
Why It Matters?
The end of loan extensions means losses that have been deferred are more likely to be realized, which matters for bank and CMBS holders. Multifamily is particularly exposed because much of the maturing debt carried floating rates. For investors with capital, repricing of up to about 10% on some deals, according to Morgan, points to better entry prices than a few years ago.
What’s Next?
Watch whether sellers capitulate over the coming months, which Morgan expects, unlocking a wave of distressed sales. The path of interest rates will determine how many borrowers can refinance. Lenders’ willingness to sell loans or seize assets will set the pace of the cycle.
Affected Tickers and Coins: VNQ, XLRE
Source: CNBC
