A $1.5 Trillion Wall of Debt is Looming for US Commercial Properties
Almost $1.5 trillion of US commercial real estate debt comes due for repayment before the end of 2025. The big question facing those borrowers is who’s going to lend to them?
“Refinancing risks are front and center” for owners of properties from office buildings to stores and warehouses, Morgan Stanley analysts including James Egan wrote in a note this past week. “The maturity wall here is front-loaded. So are the associated risks.” The investment bank estimates office and retail property valuations could fall as much as 40% from peak to trough, increasing the risk of defaults. Adding to the headache, small and regional banks — the biggest source of credit to the industry last year — have been rocked by deposit outflows following the demise of Silicon Valley Bank, raising concerns that will crimp their ability to provide finance to borrowers. (so is addition to a shrinking depositor base they also carry a large amount of these loans that are not going to be able to be refinanced as in the past) The wall of debt is set to get worse before it gets better. Maturities climb for the coming four years, peaking at $550 billion in 2027, according to the MS note. Banks also own more than half of the agency commercial mortgage-backed securities — bonds supported by property loans and issued by US government-sponsored entities such as Fannie Mae — increasing their exposure to the sector. “The role that banks have played in this ecosystem, not only as lenders but also as buyers,” will compound the wave of refinancing coming due, the analysts wrote. Rising interest rates and worries about defaults have already hurt CMBS deals.Sales of the securities without government backing fell about 80% in the first quarter from a year earlier'according to data compiled by Bloomberg News. Amid the gloom, there are some slivers of good news. Conservative lending standards in the wake of the financial crisis provide borrowers, and in turn their lenders, with some degree of protection from falling values, the analysts wrote. (that doesn't help the outstanding loans and there is nothing offered as proof but good try!)
American offices are half-empty. That could be the next big risk for banks
https://infiniteunknown.net/2023/04/10/american-offices-are-half-empty-that-could-be-the-next-big-risk-for-banks/
(regarding the above ^^^ from yesterday-they were at the same level six months into the 'Rona manufactured lockdowns in 2020)
Sentiment toward multifamily housing also remains much more positive as rents continue to rise (Kek!), one reason why Blackstone Real Estate Income Trust had a positive return in February even as rising numbers of investors lodge withdrawal requests (They are gatekeeping it hard and had $4.5B of redemption requests and paid out only $666m so naturally there is moar spin on this than they would like to admit) . The availability of agency-backed loans will help owners of those properties when they need to refinance. Still, when apartment blocks are excluded, the scale of the problems facing banks becomes even starker. As much as 70% of the other commercial real estate loans that mature over the next five years are held by banks, according to the report. (which is exactly why the ones who see this coming will-and already are-dumping these onto to the banks that don't see this coming-the big bois are not going to get trapped in a situation where the balloon style type of loan won't be able to be refinanced becasue rents have dropped and occupancy rates along with that because it's not just a question of lowering interest rates..that is not going to solve this in the commercial sector) European real estate issuers, meanwhile, have the equivalent of more than €24 billion due for repayment over the remainder of the year, Bloomberg Intelligence analyst Tolu Alamutu wrote in a note. “We are definitely seeing real estate companies do all they can to delever - scaling back investment programs, more joint ventures, bond buybacks and where possible, dividend cuts,” she said in an email. “Disposals are a key focus too. Some recent comments from real estate issuers suggest it’s still not easy to sell large portfolios.”
and some of the ongoing Evergrande saga "China Evergrande Group, the developer at the heart of the nation’s property crisis, said it signed restructuring support agreements with some dollar bondholders backing its proposed debt restructuring. Meanwhile, another Chinese builder, Shimao Group Holdings Ltd., is circulating draft restructuring offers to advisers of an ad-hoc bondholder group."
https://www.bnnbloomberg.ca/a-1-5-trillion-wall-of-debt-is-looming-for-us-commercial-properties-1.1905638
So you are a property manager and you have this looming you are just going to say "ok you can have this back (to the bank) because it's half empty and rents can't be raised to make up the difference" so into default it goes