Monday, July 27, 2009

$165 Billion in CRE Debt Maturing in '09

From Bloomberg: Almost $165 Billion in Commercial Mortgages to Come Due in ’09
Almost $165 billion in U.S. commercial real estate [shops, offices, hotels, apartment buildings and land] loans will mature this year and need to be sold or refinanced as rents and occupancies fall, according to First American CoreLogic.

The U.S. South has the most maturing loans with 60,893 mortgages valued at $96 billion coming due on shops, offices, hotels, apartment buildings and land, Santa Ana, California- based First American said in a report. The West is second with 20,549 mortgages maturing for a value of $35 billion.

REITs will have less trouble with maturing loans held by banks than with debt sold as commercial mortgage-backed securities, said Rich Moore, managing director at RBC Capital Markets in Solon, Ohio.

“If you go to the CMBS market, that’s where the danger comes in, because the CMBS market is a bunch of assets pooled together,” Moore said. “It’s much more difficult to extend those loans -- not impossible, but much more difficult.”

Banks likely will offer extensions to avoid having to manage or sell properties, especially with little buyer demand for commercial real estate during the recession, Moore said. U.S. commercial property prices fell 7.6 percent in May from a month earlier, bringing the total decline to 35 percent since the market’s peak, Moody’s Investors Service said last week. Prices dropped 28.5 percent in May from the year earlier period.

“As long as prices contract, we expect loan performance will worsen and that will make financing difficult,” Sam Khater, senior economist for First American, said in an interview. “Delinquencies and notices of default are rising, and we expect that to continue.”

More than 5,000 properties in the 10 biggest U.S. metropolitan areas got at least one default notice in March, marking the first time that’s happened in First American records going back to January 2003.