An estimated $1.4 trillion in commercial mortgages are due to mature between 2014 and 2017 and, according to a year-end report from real estate analysts Trepp, lenders and investors could be in for a flood of refinancing that could result in challenges for the market.
The greatest volume of loans will become due in the northeast states, including New York, New Jersey, and Connecticut at close to $100 billion. This region represents 30 per cent of all maturing loans.
The Pacific and Southeast regions have close to 20 per cent of loans while the Midwest, Southwest and Mountain regions each have less than 15 per cent of maturing loans.
Commercial mortgage backed securities (CMBS) loans make up about 25 per cent of the total, with $346 billion due to mature before 2018.
Office borrowers will probably see a steady rise in loan to value (LTV) ratios between 2014 and 2017.
Refinancing troubles could start next year, barring a loosening of underwriting standards or significant property appreciation.
By 2017, borrowers in the Midwest will be facing the greatest challenges, followed by borrowers in the Northeast, Southeast and Mountain states.
Retail borrowers who are looking to refinance will be facing the greatest uphill battle. LTV ratios for loans maturing between 2014 and 2017 will be consistently higher than those of recently originated loans.
Economic volatility and higher taxes have taken a toll on this sector, which may have an impact on lenders’ willingness to refinance maturing loans. In almost every region of the U.S., retail borrowers may have the most difficult time meeting LTV requirements.
Industrial borrowers may also face their biggest refinancing problems in 2015. Many of them will be well positioned next year with LTV ratios for maturing loans that are comparable to those for recently originated ones.
In following years, however, LTV ratios are likely to peak, and exceed 75 per cent in 2016, making it more difficult for industrial borrowers to refinance.
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