Doug Marshall
Market Assessment
Published April 15, 2009
Over the next three years a record volume of commercial real estate loans, $814 billion, will be coming due. In normal times, that would not be a problem. But in a very tight credit market this is a potential recipe for disaster, according to a newly released report from Foresight Analytics.
Already, the refinancing wave has taken shape. Matt Anderson of Foresight Analytics says that fully 80% of loan originations in 2008 were refinances. And he anticipates no slowing of the loan volume.
What happens, though, to new loan opportunities on the horizon? Have they a chance of finding financing? Very little, says Anderson.
“If there is enough capacity out there to keep the existing inventory afloat for a while, the dollar amount of loans maturing will really soak up so much of the capacity of the market that there will be very little net new growth for the next decade.”
With liquidity already scarce, it’s difficult to see where money is going to come from for loans maturing every year at an all-time rate through 2017.
Many investors are already attempting to delay the inevitable by requesting one-year extensions. Although these extensions relieve some of the pressure now, all they are doing is postponing the inevitable.
To make matters worse, many of the lenders that could relieve this pressure aren’t around anymore. Commercial mortgage-backed securities (CMBS), life insurance companies, and banks, a great many of the originators of these loans in better times no longer exist.
“Unless there’s a big shift and the CMBS engine gets revved up again, there’s definitely going to be a shortfall,” says Anderson.
To avoid massive distress, Anderson says, lenders will need to become more lenient in the way they underwrite loans which is the exact opposite of what is actually happening in today’s lending environment.
So at the present time, there is an obvious disconnect between the reality of the situation and what needs to happen in order to make it through this lending crisis. How are we going to get through this? Stay tuned. We’re not out of the woods yet, not by any means.
Source: Sibley Fleming, NRE Investor Magazine, Marh 18, 2009
Market Assessment
Published April 15, 2009
Over the next three years a record volume of commercial real estate loans, $814 billion, will be coming due. In normal times, that would not be a problem. But in a very tight credit market this is a potential recipe for disaster, according to a newly released report from Foresight Analytics.
Already, the refinancing wave has taken shape. Matt Anderson of Foresight Analytics says that fully 80% of loan originations in 2008 were refinances. And he anticipates no slowing of the loan volume.
What happens, though, to new loan opportunities on the horizon? Have they a chance of finding financing? Very little, says Anderson.
“If there is enough capacity out there to keep the existing inventory afloat for a while, the dollar amount of loans maturing will really soak up so much of the capacity of the market that there will be very little net new growth for the next decade.”
With liquidity already scarce, it’s difficult to see where money is going to come from for loans maturing every year at an all-time rate through 2017.
Many investors are already attempting to delay the inevitable by requesting one-year extensions. Although these extensions relieve some of the pressure now, all they are doing is postponing the inevitable.To make matters worse, many of the lenders that could relieve this pressure aren’t around anymore. Commercial mortgage-backed securities (CMBS), life insurance companies, and banks, a great many of the originators of these loans in better times no longer exist.
“Unless there’s a big shift and the CMBS engine gets revved up again, there’s definitely going to be a shortfall,” says Anderson.
To avoid massive distress, Anderson says, lenders will need to become more lenient in the way they underwrite loans which is the exact opposite of what is actually happening in today’s lending environment.
So at the present time, there is an obvious disconnect between the reality of the situation and what needs to happen in order to make it through this lending crisis. How are we going to get through this? Stay tuned. We’re not out of the woods yet, not by any means.
Source: Sibley Fleming, NRE Investor Magazine, Marh 18, 2009
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