As CRE loans get ready to mature, refinancing may be difficult
7/17/2016 | Real Estate Blog
Many Pennsylvania developers are preparing for their commercial real estate loans to mature. When that occurs, most will need to refinance their mortgages. They may find it difficult to find financing when they need it, however, especially if they own multi-family properties or strip malls.
Multi-family properties and strip malls are ineligible for government-sponsored enterprise financing. Consequently, many have relied on obtaining loans through small banks in order to fill the funding gap. If the small banks are unwilling to make these loans, then the risk of defaults for commercial mortgage-backed securities could increase substantially. In 2017, Morgan Stanley is predicting a refinancing rate of 50 percent.
Morgan Stanley cautions that the role of banks in the commercial real estate market may lead to heightened scrutiny, leading many smaller banks to be reticent to continue filling the gap for GSE financing. Currently, prices for commercial real estate have flattened. Despite this, banks have continued increasing their commercial real estate portfolios with loan originations reaching 52 percent. As a result, the availability of refinancing funds for commercial mortgage backed securities may plummet, and thus the owners of properties for which the loans are scheduled to mature may find it difficult to refinance next year.
Commercial real estate developers who have loans that will mature in the next couple of years may want to be proactive about the looming situation. They may want to get the assistance of a real estate attorney in finding alternative funding sources in order to prevent defaults on their loan obligations. An attorney can also assist in completing all of the necessary paperwork so that clients can secure the funding that they need.