A staggering 20% of outstanding debt on US commercial and multifamily real estate, totaling $929 billion, is set to mature this year, necessitating refinancing or property sales. This volume of loans coming due has surged by 40% from the Mortgage Bankers Association’s previous estimate of $659 billion, primarily due to loan extensions and other delays rather than new transactions.
With the Federal Reserve indicating a halt in interest rate hikes, it’s anticipated that more deals will be finalized this year, according to Jamie Woodwell, head of commercial real estate research at the bankers’ group.
“Volatility and uncertainty surrounding interest rates, coupled with a lack of clarity on property values and concerns about certain property fundamentals, have suppressed sales and financing transactions,” Woodwell stated on Monday. “This year’s maturities, alongside increased clarity in these and other areas, should begin to alleviate the logjam in the markets.”
Concerns are mounting among regulators and investors as the value of commercial buildings declines, with an estimated $4.7 trillion of debt from various sources backed by US commercial real estate. Rising defaults and write-downs have impacted lenders such as New York Community Bancorp, KKR & Co.’s commercial mortgage real estate investment trust, and holders of commercial mortgage-backed securities.
According to MSCI Real Assets, approximately $85.8 billion of commercial property debt was considered distressed at the end of 2023, with an additional $234.6 billion potentially facing distress.
Commercial property prices have declined by 21% from their peak in early 2022, before the Federal Reserve initiated aggressive rate hikes to combat inflation, as per January data from Green Street. Office prices have experienced the sharpest drop, falling by 35%, according to the real estate analytics firm.
Banks are facing $441 billion of commercial-property debt maturing this year, according to the mortgage bankers’ group. Approximately $234 billion of maturing debt is securitized in CMBS, collateralized loan obligations, and asset-backed securities, while $168 billion in loans are due for nonbank lenders such as debt funds.
The MBA noted that about 25% of office loans are set to mature in 2024, as values have declined sharply and vacancies have surged with the rise of remote and hybrid work.
