CMBS Borrowers Feeling the Squeeze on Refinancing

2016 and 2017 are the years when many CMBS (Commercial Mortgage Backed Securities) mortgages mature. Loans that were written in the height of the real estate market are now coming due. Even though most of these loans are not in default, we are already seeing problems with those forced to refinance.

The problems are twofold. First, although property values have rebounded form their post crash lows, lenders have become very skittish and want higher value ratios. Borrowers who never missed a payment are suddenly facing maturity defaults.

A second problem is the lack of lenders. Many lenders have backed out of the CMBS market. Big banks have pulled way back leaving a void. Banks are faced with a regulatory double whammy. First, they now have higher capital reserve requirements. New rules will also kick in this year requiring banks to keep 5% of CMBS pool loans on their books for five years.

Until those regulations are fully implemented and understood, banks have suddenly cooled to refinancing these loans at the same time demand is peaking.

New bridge lenders, hedge funds and private equity lenders are stepping in but they lack the experience in this market.

The result for borrowers needing to refinance is higher rates and an increased risk that lenders will demand additional capital contributions. Depending on how the borrowers are organized, this could be problematic.

At particular risk are those CMBS borrowers organized as tenants in common or TICs. Popular in 2006 and 2007, these structures have fallen out of favor and raising capital from dozens of members – many who are elderly – is difficult.

Another group at risk are borrowers in the hospitality industry. Hotels and other resort properties are very sensitive to the economy. Lenders are worried about another slowdown.

Is there hope?

Yes. New nonbank lenders are filling the void, although expect higher rates. Borrowers may have to contribute capital too or give up some of their ownership if they can find a nonbank lender willing to partner.

TIC groups may have to undergo a rollup and change their ownership structure.

The bottom line is that borrowers shouldn’t wait. We have already seen borrowers caught off guard. Simply because your loan is not in default doesn’t mean refinancing is automatic.

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MahanyLaw and Judge, Lang & Katers are lender liability lawyers. We sue banks, special servicers and trustees. Usually we are called in by other lawyers when borrowers are in trouble. We have significant experience, however, in helping CMBS borrowers refinance and restructure.

Wherever you are in the process, we can help. For more information, contact attorney Christopher Katers at [hidden email] or by telephone at (414) 777-0778. The author of this post, attorney Brian Mahany can be reached at [hidden email]

MahanyLaw and Judge, Lang & Katers – America’s Lender Liability Lawyers

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