RCA: Maturity Wave Won’t Be a Tsunami


Just 2.4% of the 2006/2007 CMBS backed by Manhattan properties faces challenges in refinancing.

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NEW YORK CITY—The wave of 10-year CMBS maturities is set to roll in beginning in 2016, and while it will be a massive wave, it’s not likely to come crashing ashore with tsunami-like force. Not according to Real Capital Analytics, which estimates that just over one-third of 2006- and 2007-vintage loans maturing in ’16 and 2017 will either require additional capital or be worth less than the original loan.

“Our key finding is that the wave of 2016 and 2017 maturities will not lead to massive defaults and foreclosures,” according to RCA’s latest US Capital Trend Report. If anything, the commercial property analytics firms sees an opportunity for those involved in mezzanine lending, “as well as potential for higher sales volume as owners extract remaining value directly.”

The estimate of one-third of maturities coming up short is based on the current Moody’s/RCA Commercial Property Pricing Index. RCA notes its CPPI has been growing at double-digit rates recently,” according to RCA. Reworking the analysis to assume that the market sees a further 10% increase in prices, only 25% of these loans outstanding will face challenges, not one-third.”

By sector, multifamily is in the best shape, a result that RCA doesn’t consider surprising, in view of the fact that strong investor demand for apartments has driven prices 27% above the 2007 levels. “Only 9% of all apartment loans will require any sort of additional capital or face further refinancing challenges,” according to RCA. “By contrast, 45% of all retail loans will face such challenges. The retail price recovery is simply not as far along.”

On a market-by-market basis, the six major metropolitan areas have the fewest problem loans, although it’s not equally smooth sailing among all of them. Of the big six, Chicago has the highest concentration of loans where additional capital will be needed to refinance, with 40.5% of the metro’s ‘16/’17 balance—nearly $2.7 billion worth—falling into this category.

Manhattan, by contrast, faces just under $400 million of such loans, about 2.4% of the total. Within the New York City metro area, Northern New Jersey stands out as a challenged area, with 60% of outstanding loans, or $2.5 billion, requiring additional capital. That total is accompanied by another $72 million of loans that RCA predicts will be a “difficult” refi, or 1.7% of the total. Among the markets in the Northeast, that happens to be the highest percentage falling into the “difficult” category.

It’s a different story in Las Vegas and Phoenix, where problem CMBS loans dwarf the tally of “easy” refis. In Phoenix, 84.3% of CMBS maturing over the next two years will either be “difficult” or require more capital; in Vegas, the total is 90.2%. Other metro areas where two-thirds or more of the loans tilt toward the problematic end of the spectrum include Cincinnati; Cleveland; Detroit; Jacksonville; Kansas City; Memphis; Minneapolis; Stamford, CT; and Westchester County, NY, according to RCA.

Generally speaking, RCA says, the biggest problems are in the tertiary markets, where almost half of all loans will face difficulties. Tertiary areas of the Southeast have $5.9 billion worth of loans where additional capital will be required to refinance. Those in the Northeast and Mid-Atlantic have seen stronger price recovery, thanks to being caught up in the tailwinds of the major metros in these regions.