How Contagious Are Commercial Real Estate’s Ills?
Commercial Observer
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Conventional wisdom now holds that the risks to commercial real estate — including billions in maturing loans that borrowers likely will not be able to refinance and the plunging values of assets such as older office buildings — are a major threat to the overall U.S. economy. That might be true. But there’s a lot to pick apart. Also for today: Speaking of maturing loans, new data seeks to pinpoint how many loans tied to multifamily assets are coming due soon.
— Tom Acitelli, Deputy Editor
Commercial Real Estate's Systemic Threat: Separating Fact From Fiction
They say perception precedes reality. In the case of commercial real estate finance, then, the divergent opinions surrounding the health of capital markets has produced gossip, innuendo, rumors and fear. “Doom loop,” “meltdown,” “downward spiral,” “debt bomb” and “banking crisis” are phrases that regularly appear in articles attached to underwater multifamily portfolios or summaries of heavily leveraged office towers whose rents can no longer service their debt. That, in turn, fosters the belief that the loans provided by banks and private lenders are unlikely to ever be paid back in full, thus putting the greater economy at risk. “The threat of the self-fulfilling prophecy is real and capital inflows matter, so is the concern around headlines a justifiable fear? Yeah, I think so,” said Toby Cobb, co-founder and managing partner at 3650 REIT. “What the press says can change people’s behaviors for a period of time, and investment capital, frankly, is the most democratic of assets.”
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$523B in Multifamily Loans Mature in Five Years; Five Cities At Risk: Report
Fannie Mae and Freddie Mac have originated more than half of the $1.1 trillion in outstanding multifamily loans set to mature within the next decade, and a stunning $300 billion in agency debt comes due in the next five years alone, according to a new report from Yardi Matrix. Moreover, the largest number of properties secured by those same loans are within five metropolitan areas: Atlanta, Dallas, Denver, Houston and Chicago. All told, there are currently 58,333 multifamily properties nationally carrying an outstanding balance of $1.1 trillion. “The gateway cities have the largest demand,” said Doug Ressler, manager of business intelligence for Yardi Matrix. “The developers are looking at it longer term — three to five to 10 years — and they’re asking, ‘Do I have the ability with a long runway to garner revenues with increasing expenses? Do I have the demand that I can bring people into my apartments to be able to get that revenue I need over the long term?’ “Larger cities have more propensity for density,” he added.
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