The Wall of Maturities has arrived. Are you ready to scale it?
Hundreds of billions of dollars in commercial real estate loans will mature over the next three years as thousands of 10-year CMBS products from 2005-2007 reach full-term. Approximately $300 billion in defeasance-eligible and prepayment-eligible loans are set to mature.
Owners and investors have been speculating about what this period will mean for the CMBS industry for years. It seemed especially daunting in the painfully slow recovery from the Great Recession when property values tumbled from their 2005-2007 highs.
Rising property values in key markets recently have allayed fears, despite slow recoveries in some tertiary markets. Conditions today have brought buyers, lenders and investors back to the table. What happens if the Federal Reserve interest-rate hikes lead to steep borrowing cost increases in 2016 and 2017?
“Commercial real estate lenders, borrowers and CMBS investors alike are looking at the next three years as a true test of the strength of recovering capital markets,” research service Trepp LLC says in a recent report.
Today’s low-rate environment, combined with the coming wave of maturing CMBS has prompted greater numbers of borrowers to consider early exits from existing loans via defeasance or prepayment. Every sector is different, however, and what makes sense for a Southeastern retail center may be different than the solution for a self-storage facility on the West Coast.
There are other questions few have bothered to ask: What happens two years from now, on the other side of the wall when very few loans are maturing? Are more recent vintage loans prepared for their fate?
In the coming weeks, our Defease with Ease® experts will tackle these pressing questions with a series of insights into the Wall of Maturities and beyond. With more than 15 years of defeasance, yield maintenance and interest rate hedging experience, we have answers to the questions yet to be asked.