CMBS News Getting Worse

Trepp, LLC, the leading source of analytics to the Commercial Mortgage Backed Securities (CMBS) industry, issued a press release this week and the news isn’t good. According to the company, the US CMBS delinquency rate soared to new highs.


We have long warned TIC groups and other non-professional borrowers of the looming crisis. Most CMBS loans were written at the height of the real estate market in 2006 and 2007. The loan terms were typically interest only and for 10 years. Many projects have refinanced but there are still billions of dollars in loans coming due.

If we were in a growing market, refinancing would be easier. The real estate financing world forever changed in 2008, however. Banks and nonbank lenders are more cautious now. And new financing and risk retention rules just coming on line this year have lenders nervous. Until the kinks work out, this is a bad time to refinance. And the CMBS refinancing market is way down.

Some would call this the perfect storm.

By the numbers, Trepp says the delinquency rate “ascended sharply” in December. The commercial delinquency rate is now 5.23%. The delinquency rate for office space is much higher.

Despite our repeated warnings, it may be useful to hear what others are saying. Like Trepp, the independent company that tracks delinquencies. In their words, “The CMBS market opens 2017 in uncharted waters. Issuers are now required to adhere to risk retention compliance, and higher lending spreads and interest rates could be in the offing for borrowers. All of this comes at a time when loans securitized in 2007 are coming due in droves.”

Tenant in Common held projects are particularly at risk as are other forms of ownership with multiple members. Some lenders no longer wish to work with larger groups or in some cases, it may difficult to round up all the members after 10 years.

There is a common misperception by non-institutional borrowers that the trusts owning these notes will simply refinance. That imply isn’t true. These trusts are not banks and are not in the business of making loans. They purchase loans.

Another misperception is that simply because a project has positive cash flow means refinancing will be automatic or easy. Wrong again. The existing CMBS loans are interest only. Now lenders often want to see more money so that the principal can be paid down or want to see more equity. For institutional borrowers, that is an easy fix. But try to get 35 individual investors, many of them elderly, to pony up more money! It isn’t easy.

If you have a CMBS loan that is maturing in 2017, don’t wait another minute. Once a project is in default, millions of dollars of equity – your equity – could be wiped out in seconds. Refinancing a project in default is also costlier. Not having a refinancing plan puts you at risk of a so-called maturity default.

We are one of the few commercial firms that is geared towards borrowers and not banks. We also have unique experience working with investor groups and TICs.

For a no fee, no obligation consultation, contact attorney Chris Katers at [hidden email] or by telephone at (414) 777-0778. We have helped over 100 individual investors nationwide and several investor groups.

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

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