Looming CMBS Loan Maturities 2015 to 2017
The commercial mortgage-backed securities (CMBS) market exploded in the early 1990s as a huge new source of capital for commercial real estate projects. As many of these debts begin to mature in 2015, the forecast is uncertain. Some predict a wave of problem loans on the horizon.
These 10-year debt instruments were flowing like water in the economic hey-day years of 2005 through 2007. By 2009, the CMBS origination market was pretty much dead. While some of the debt has already defaulted and been foreclosed or restructured, the statisticians and the CMBS market are closing watching the amount of debt maturing in 2015 to 2017, due to the large amount of CMBS debt issued in 2005 to 2007.
Total CMBS debt issued nationwide in 2014 is approximately $100 billion. In contrast, in 2005, $169 billion of CMBS were issued, followed by $202 billion in 2006 and $230 billion in 2007. One report calls 2014 the “refinancing calm before the refinancing storm of 2015-2017.” Credit Suisse reports in its September 2014 Market Watch publication that there is currently approximately $81 billion set to mature in 2015, followed by $127B in 2016 and $124B in 2017.
The historic low interest rates mandated by (or you could say “manufactured” by) the Fed have hidden distressed properties and commercial credits for some time now. The rolling 10 year renewals from earlier years (pre-2005) were neither as risky nor as aggressive as those from the 2005-2007 timeframe. While some will submit that the market is on the rise, and certainly it is stronger than 2008 -2010, the fact remains that LTV ratios are lower today and debt coverage ratios are higher. We will all be left to wait and see how the CMBS market reacts to the tsunami of maturities. With the current volatility in other market sectors, predictions remain just that.
Different types of commercial projects may see different results as well. Multi- unit apartments, hotel/motel, retail, and office space may each begin to spiral in certain directions. While the stronger CMBS pools will likely survive, the market will most certainly begin to expose the weaker projects. The underwriting assumptions made in 2005 to 2007 were much more aggressive and made at the height of the “booming” market.
From the borrowers’ perspective, best to begin to think ahead through dealings now with the servicers on the loan: this in and of itself is often a major headache. With the primary servicers, the master servicers, the special servicers, the trustee, the pooling agreements, and various tranches, the administration issues can be quite complex and difficult. Often, just getting to the decision maker takes time. The same law firm that handled the initiation and closing of the front- end transaction often does not necessarily represent the servicers on the back-end of a default or restructure.
Lenders have been playing the “extend and pretend” game for quite some time now. We will soon see how long the game will continue in the CMBS marketplace.
DelCotto Law Group handles all types of loan restructures, debtor/creditor litigation, and bankruptcies. If your credit is in a CMBS pool, don’t expect to engage in a typical borrower/lender relationship like with your banker down the street. You may get caught in limbo- land between the Master Servicer and the Special Servicer. You may beat your head against the wall with frustration about the terms and/or conduct, but the rights of the Special Servicer to handle the restructuring are laid out in the Pooling and Service Agreement ( the “PSA”) and often don’t give much leeway. There can be conflicts and other little dirty secrets that people don’t want to discuss as to all the tranches, the duties and obligations of the Servicer, the REMIC requirements, the bondholders, etc.
Morningstar reports that over 80% of the special servicing volume is handled by only three servicers: CWCapital Asset Management, LNR Partners and C-III Asset Management.
These are very complex and challenging loan restructures and complex litigation if it ensues. Do your best to find counsel who has some familiarity with the CMBS basics and the pressure points involved. We believe the Special Servicers are going to be quite busy in 2015 and beyond.