As delinquencies continue to rise and more landlords walk away from financially impaired properties, the specter of looming commercial real estate (CRE) debt maturities – which many estimate to be in excess of $1.5
trillion over the next three years – has been amplified by events other than the precipitous rise in financing rates during the FOMC’s current rate-hiking cycle: namely, dried up funding from regional/community banks, the advent of remote working models, and the growing share of consumer spending via e-commerce. Indeed, a growing number of banks have either paused or reduced the amount of credit available for selected CRE lending, particularly offices and shopping malls, as regulators have stepped up pressure on lenders to bolster their capital ratios given the recent SVB/SBNY/FRBK bank failures, mountain of near-term CRE debt maturities, and falling occupancy rates due to structural changes in the labor force. Further compounding maturity concentration are the negative effects of higher interest rates and, to a lesser extent, the very structure of many CRE loans, which are often originated as “Interest Only” (IO) structures, where borrowers make only interest payments during the loan term (typically 5-10 years), with a balloon payment for the entire principal borrowed on the maturity date.
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