Nearly Half The $4.7 Trillion Property Debt Market Matures By 2026!

commercial loans commercial real estate Mar 28, 2024

The folks at Costar recently published an article about commercial real estate loans coming due in the next couple of years. This is a tremendous opportunity to get some deals in the pipeline for 2024 and most definitely a strategy to start filling your pipeline for 2025! There will be plenty of properties that are good candidates for refinance transactions and an equal amount of properties that you want to avoid!

The first thing you need to do to capitalize on this tsunami of maturing commercial debt is to really understand your bank’s appetite for commercial real estate. Don’t waste your time chasing debt that your bank does not want to refinance! The next step is to go hunting for those properties that have maturing debt in the next couple of years and that fit your bank’s risk appetite!

If you want to put together a lead list and a highly effective drip marketing campaign built around properties with maturing debt, don’t hesitate to reach to me ([email protected]). Below is what the folks at Costar had to say about the tsunami of commercial debt maturing! Costar is basically saying that there is a lot of commercial debt maturing and there will be challenges get some of that debt refinanced! This just means that you need to pick your maturing commercial debt carefully so that you don’t waste time and resources chasing deals that are not going to go anywhere!

The commercial real estate debt market is poised for a record-breaking event this year as $929 billion in loans are set to mature, with an additional $1 trillion anticipated to come due between 2025 and 2026. These maturities represent 42% of the sector's total outstanding debt.

Last year's extensions and loan term modifications helped mask early distress signals in certain property types. However, the significant uptick in loan maturities this year could lead to increased transaction volumes and higher default rates should borrowers encounter difficulties securing new refinancing.

Unlike residential housing, commercial real estate loans typically have terms ranging from a few years for bridge loans to loans with longer terms of up to 10 years for stabilized assets. At the end of these terms, including any extension periods, the full principal balance must be repaid. While loans are generally paid off at maturity under normal market conditions where sufficient credit is available, tighter credit conditions resulting from rising interest rates or market uncertainty have made securing new refinancing challenging.

The next three years could see lending conditions remain tight alongside an unprecedented volume of maturing loans. If this trend continues, it could lead to a situation similar to a game of musical chairs, where there aren't enough financing options available when the music stops, when these loans come due.

When analyzing loan maturities by property and lender types, it's beneficial to consider the varying sizes of outstanding debt by category. A detailed examination of both the nominal maturity levels and the percentages of loans maturing each year offers a clearer view of these concentrations.

With $2.1 trillion in outstanding debt, the multifamily sector is expected to see about $645 billion in maturities over the next three years, accounting for 30% of outstanding loans. The office sector is facing the steepest hurdle with $737 billion in debt and 48%, or $385 billion, of those loans due by 2026.

The industrial and retail sectors each have just over $400 billion in outstanding loans. The industrial sector anticipates $210 billion in loan maturities in the next three years, while the retail sector expects $178 billion, or 43% of its loans, coming due by 2026.

The hotel sector, with the smallest portion among the five major property types, has $275 billion in outstanding debt but will face $195 billion in loan maturities in the next three years, roughly 70% of its existing loans.

From the lender's perspective, banks have the largest exposure to loan maturities through 2026, with $900 billion due, representing over half of the $1.7 trillion in loans on their balance sheets. Government- sponsored enterprises, or GSEs, hold another $962 billion in outstanding loans, with $119 billion, or 12%, maturing by 2026.

The CMBS market, slightly larger than the life insurance industry, has $752 billion in outstanding loans, with 54% set to mature over the next three years. In contrast, only 27% of life insurance loans are due to mature during this time.

Credit companies, with $467 billion in outstanding loans, face a significant proportion of pending maturities, as nearly three-quarters of their loans are due over the next three years.

While the nominal levels of loan maturities are important to consider, analyzing the concentration of maturing loans as a percentage of property and lender type helps uncover potential risks. As the commercial real estate sector braces for a torrent of loan maturities, understanding this distribution and its potential impacts will be crucial for navigating opportunities ahead.

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