CREFW-Fall2015

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CRE Finance World Autumn 2015
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Figure 2
2015 (Morningstar)*
Figure 3
2016
Figure 4
2017
According to the report: “Based on Morningstar’s experience cov-
ering most of the CMBS universe, our historical analysis indicates
that an 80 percent LTV threshold is a reliable barometer of a loan’s
likelihood to successfully pay off on time.”
Using this 80 percent threshold, it can be concluded that
approximately $8 billion, or 34 percent of the remaining $24 billion
maturing this year, will not be able to pay off. In 2016, the number
of loans unable to pay off increases to just over $36 billion, or 33
percent, and in 2017, the number is a staggering $53 billion, or 48
percent. This means that just under $100 billion of maturing CMBS
loans will likely not be able to pay off between now and 2017.
What is not factored into these estimates is how the inevitable
increase in interest rates will affect the borrower’s ability to
refinance. And talk of a potential interest rate increase is quite
commonplace now.
So, what will happen to the loans where the borrower will not be
able to refinance at maturity? The only available options in this
situation are (1) for the borrower to fund the negative equity, (2) to
grant an extension on the loan when it is deemed that additional
time will cure the negative equity situation, (3) allow the borrower
to pay the loan off at its current value; which could result in a
discounted payoff, or (4) for the CMBS Trust to become the owner
of the property through a foreclosure or friendly borrower hand
back of the property. High leverage bridge lenders will provide a
critical component to these options by providing a unique funding
source for borrowers faced with extremely high leverage at maturity.
The final determination on how these maturing loans are handled
all resides with a few key industry players, special servicers and
controlling class certificate holders, so everyone in the industry is
carefully watching to see how the 2015 maturities are getting resolved.
It’s too early to predict the final casualties of the Great Wall of
CMBS maturities; however, borrowers should remain as proactive
and vigilant as ever about their own personal situation.
Countdown to 2017 — The Great Wall of Maturities