More than $16B in CMBS loans are coming due for New York City building owners this year, a 30% increase over last year’s $12.7B in mortgage-backed loan maturities, according to Trepp.
A significant part of the increase in loan maturities is due to owners who opted for one-year loan extensions last year. However, analysts warn that lenders are in no mood to accommodate this kind of “pay me now or pay me later” wiggle room in the current financial environment, so extensions may be hard to come by.
CMBS loans coming due this year on two NYC properties made Trepp’s “watch list” of the largest office building loans in the US that are scheduled to mature in 2023—both of them on Park Avenue—375 Park Avenue ($783M) and 300 Park Avenue ($485M).
The loan on the property at 375 Park Avenue—a.k.a. the Seagram Building, owned by RFR Holding—matures in May. According to Trepp the building is 75% occupied. The loan on Tishman Speyer’s office building at 300 Park Ave., which Trepp says is 81% occupied, comes due in August.
Trepp’s watch list also notes that another mega-loan involving a building on Park Avenue—a $750M loan for The Stahl Organization’s tower at 277 Park Ave.—comes due in August 2024, which is when the building’s anchor tenant will be preparing to move into a new tower the nation’s largest bank is building as its new HQ.
Last week, Trepp released a list of 21 properties across the US that have large CMBS loans coming due in the next two years. Trepp said that office properties with large loans “have replaced shopping malls at the top of the list of investors’ worries.”
Trepp projected that office building owners facing loan maturities this year will struggle to refinance, office values will continue to fall and the loan delinquency rate for office assets “can only go up.”
“No one want to lend to office owners unless the rent roll is pristine with long leases,” Trepp’s CMBS watch list report said.
According to a Bloomberg analysis, an estimated $175B in CMBS loans are already in distress.
An exponential increase in the cost of interest-rate caps—insurance that CRE borrowers with floating rates purchase to hedge against rate increases—may soon spawn a wave of property sales in an increasingly distressed market.
In 2019, the Mortgage Bankers Association estimated that up to one-third of all commercial property debt was floating rate, with most lenders requiring that borrowers hedge against an increase in the borrowing costs.
When interest rates were low, derivative contracts offering hedges on multimillion-dollar mortgages could be purchased for as low as $10K. Now—as the lion’s share of these insurance contracts are expiring—the cost of rate-cap hedges is as much as 10 times higher that it was a year ago, according to a report in the Wall Street Journal.
Few buyers who opted for floating-rate loans when borrowing costs were low anticipated they were going to have to rebuy a cap at the same time interest rates are peaking, the report said.