Monday, September 21, 2009

Lack of Refinancing Options for Maturing CMBS Loans

In Two Kinds of Pain for Commercial Real Estate Loans, I wrote that about the shortage of funding to refinance commercial real estate loans as they come due.

In a study for The Wall Street Journal (subscription required), Trepp, which tracks the commercial real-estate market, found that, year-to-date, 528 commercial mortgage backed securities (CMBS) loans valued at $4.7 billion weren't able to refinance when they matured. About 75 percent of these commercial real estate loans were backed by properties that were throwing off more than enough cash to service their debt!

A quick calculation shows that the average loan size for these 528 CMBS loans was approximately $8.9 million. That's not really a large number - this lack of re-financing capacity is likely to impact small and medium sized commercial real estate owners.

At last week's ACG Conference in Los Angeles, I listened to a bank presentation on the state of the debt markets. This bank has tightened their lending criterion for loans including those secured by commercial real estate in part by raising the minimum debt service coverage ratio. If I recall correctly, a 1.35x debt service coverage ratio is the current minimum. By the way, this bank is not lending on commercial real estate without the borrower bringing its entire relationship to the bank.

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Tags : commercial real estate loans , commercial real estate , bank failures , real estate bridge loans , private money loans , California

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