Bankruptcy professionals are warning that borrowers on securitized commercial real estate loans should be working avoid an impending crisis.
CRE loans that are part of commercial mortgage-backed securities account for around a quarter of all commercial mortgages.
A wave of CMBS loans are maturing during the next two to five years, and borrowers need to address maturing debt in order to avoid a potential crisis.
That was the conclusion of Maturing CMBS Loans: A Looming Crisis, or Nothing to Worry About? published by the American Bankruptcy Institute in the November edition of ABI Journal.
One example cited was that of a developer with a completed project that was financed by a CMBS loan. While the developer has managed to weather the economic storm that many believed to have passed, the CMBS asset is at risk of being lost.
Brian G. Rich, who wrote the article, explained that while a maturing debt crisis might seem counterintuitive at a time when numerous CMBS loan opportunities exist for new projects, “underwriting requirements are being significantly tightened as compared to pre-crisis standards.”
So maturing CMBS loans with properties that have depreciated won’t necessarily qualify for a refinance without a significant borrower capital contribution.
While refinance may be off the table for some borrowers, Rich noted, “Past experience has demonstrated that there will be viable strategies for dealing with these CMBS loans.”
Borrowers who can’t meet upcoming balloon payments can attempt to negotiate a loan modification, a deed-in-lieu of foreclosure or a short sale. Otherwise, they can file a chapter 11 bankruptcy.
