Approximately $90 billion in commercial real estate mortgages are expected to mature in 2017, according to an article in Bloomberg. Combined with more stringent lending requirements and rising interest rates, maturing mortgages are expected to result in higher defaults, noted several analysts. While owners of properties in primary metropolitan areas are expected to whither the storm, landlords in non-core markets and owners of shopping malls will probably have a much tougher time.
Maturing Mortgages
S&P analyst Dennis Sim is predicting that about 13% of real estate loans coming due will ultimately default, up from 8% over the past two years. “There are a lot of headwinds currently — with the interest-rate increase, with the new administration coming in, and also risk retention,” Sim said. “Those three wild-card factors could also play a role in how some of the better-performing loans are able to refinance or not.”
Bubble Territory
Meanwhile, many commercial real estate investors are thinking the entire sector has entered ‘bubble’ territory. Private equity real estate investor Tom Barrack tells News Press that “there is some justification to say we are in early bubble stage in the commercial space.” Yun cites commercial property prices, which have increased by 60% over the past 5-years, even faster than the residential market. So unless rents can be ratcheted up dramatically, we may be in a bubble, he says.