It’s unlikely that Blondie was referring to real estate investors in her 1980 anthem “The Tide is High,” but for many real estate investors that are struggling to refinance loans in a higher rate environment, the water is awfully high.
According to Trepp, LLC, a New York based data analytics firm, there are $300 billion of Freddie Mac and CMBS loans (Collateralized Mortgage Backed Securities) coming due in the next 24 months. Of those, 42% would be cash-in refinances and of the 42%, half would require cash in of more than 25% of the loan balance.
Familiar properties to many both in and out of real estate are struggling with values that have fallen and rates that have risen. For instance, according to Trepp, the owner of Willis Tower, which was the tallest building in the world for 25 years as the Sears Tower, has requested a 5th and final extension of their maturing $1.325 billion loan. Trepp’s analysis would have the borrowers paydown the loan by 30% to right size it.
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The $1.386 billion Mall of America is maturing next year and has been operating under a modification since COVID. Current interest rates and reported NOI at the property wouldn’t support a loan of the same amount. Another iconic property, the Hotel del Coronado, which backs a $950 million loan is on the servicer’s watchlist because the debt service coverage ratio has fallen to .77X.
While it is no great surprise that some properties are struggling to pay their mortgages, the pain has been relatively muted and has not spread to the larger economy. Despite 10% of CMBS loans backed by office (10.04%) and retail (9.81%) being in special servicing, the CMBS lending engine is actually revving up.
Recent bond pricing for loans that are originated by conduits and sold as CMBS have tightened dramatically which has given hope to borrowers that are struggling to attract capital from banks and insurance companies.
According to the recent lender surveys, pricing on new 10-year loans ranges from 6.50% to 6.75% with conduits. Multifamily loans from Fannie Mae and Freddie Mac price in the 5.75% to 6% range and loans from life insurance companies are as low as 5.75% for the best loans. Banks continue to be somewhat careful and selective with pricing in the 6.50% to 7% range on stabilized deals but pushing 8% on floating rate construction deals.
Much like volatility in the stock market in 2008 put light on the fraud committed by Bernie Madoff, Commercial Mortgage Alert reports that one borrower out of Monsey, NY has accounted for 61% of the defaulted loans for all of Fannie Mae.
The borrower is affiliated with Weiss Property Group. On at least one loan, a borrower allegedly cashed out of several properties within months of purchasing them by inflating the values to Fannie Mae so they could borrow amounts higher than the original purchase price.
Despite values that have softened and oversupply in some markets, multifamily continues to enjoy its status as the best property to lend on. In Richmond, that trend should continue according to data from Rent Café. Richmond ranked 11th in the country and 4th in the South for rental activity in February with a whopping 76% increase in page views when compared to the same month last year.
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Andy Little at Queenswood Partners can be reached at (804) 301-3985.