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Maturing CRE loans blamed for soaring delinquency rate

On Behalf of | Jul 10, 2017 | Commercial Real Estate |

California commercial real estate developers have likely heard about a looming tranche of commercial mortgage-backed securities that must be paid off or refinanced in 2017. About $2.4 billion of these loans became delinquent in June, and experts believe that this may have prompted the delinquency rate on secured commercial property loans to surge by 28 basis points to 5.75 percent. The increase marks the biggest increase in five years on a month-over-month basis. The delinquency rate stood at 4.6 percent at the end of June 2016.

The largest increase in delinquency rates was observed in multifamily residential projects according to a real estate consultancy and information firm, but the company says that this can be largely attributed to two major defaults in Virginia. Delinquency rates also increased among industrial buildings, offices and lodgings and accommodations. However, developers in the retail sector are finding things particularly difficult.

According to Wells Fargo analysts, commercial property developers are finding it increasingly difficult to refinance CMBS secured by shopping centers or other non-mall retail assets. However, the nation’s evolving shopping habits have alarmed many lenders to the point where they will renegotiate loan terms rather than face the prospect of repossessing a retail project.

Attorneys who have experience in this area are familiar with the challenges faced by commercial property developers who are seeking to refinance maturing loans, and they could also understand why they sometimes approach private lenders when traditional banks are unable or unwilling to help them. Attorneys may help developers to select appropriate loan packages by checking the backgrounds and resources of private lenders and studying mortgages and other financial documents for clauses that could present a problem down the road.