The commercial real estate industry is, no doubt, facing debt maturity issues, but it is important to consider the diverse range of asset types, locations, and debt structures that might be impacted. As we discuss on this channel, Office properties are going to be affected due to the challenges posed by hybrid work models and decreasing occupancy rates. Utilization has become a key underwriting element for office properties, and lack of utilization can make it difficult for new lenders to be comfortable with the loan. Makes a ton of sense, right? No tenants, no cash flow.
Urban-core office buildings are more likely to face trouble than suburban ones. However buildings and markets with newer, amenity-rich boutique properties are flourishing. If you haven’t heard the office market described as the “best and then the rest” let me introduce you to it now!
Multifamily properties, which have been a popular asset class among investors due to renter demand, could also experience problems with maturing debt. Bullish multifamily investors have used floating-rate debt to purchase properties at lower cap rates, with the aim of fixing them up and leasing them at higher rental rates. However, this model is now broken, leaving some property owners stuck. Multifamily owners with bridge loans are also likely to face challenges, as many of these loans are nearing maturity and require financing that may be difficult to obtain.
Certain loan types might be more vulnerable to debt maturity challenges than others. Maturing bridge loans and Commercial Mortgage-Backed Securities (CMBS) loans are frequently mentioned as potentially problematic. CMBS loans are particularly relevant for the office segment, as many of these loans are held in CMBS.
While debt maturity issues are a concern for the commercial real estate industry, it is important to consider the specific factors that may impact different asset types, locations, and debt structures. The activity we are going to see in the market will likely be primarily driven by assets with shaky debt structures, floating rate structures, or simply coming due in the next 12 months as properties that have fixed-rate loans are likely to hold tight through this market cycle.
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https://www.connectcre.com/stories/debt-maturity-whats-actually-in-trouble/
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