Commercial Property Bubble: Anxiety Mounts Over 2012 Maturing Loans

Borrowers and lenders are starting to grapple with the billions of dollars in commercial real estate loans made during the boom year of 2007 that are coming due this year, in a greatly contracted economy.

Experts have warned of a rash of recapitalizations, refinancings and building sales. In New York City alone, nearly $70 billion worth of commercial mortgages that were bundled together and issued as collateral for bonds are maturing this year. Of those, $26 billion, or 37.4 percent, are five-year loans that were originated during the height of the real estate bubble, when underwriting standards were loosest, according to data from the research firm Trepp LLC.

These include loans on prominent properties, including the Manhattan Mall, with $232 million maturing, and the Jumeirah Essex House, with a $180 million loan, according to Trepp.

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European banks, reeling from the debt crisis, have mostly stopped underwriting loans in the United States, while the market for commercial mortgage-backed securities remains relatively small, at roughly $30 billion in new issuance expected this year. And while insurance companies have increased their appetite for commercial mortgage loans, they are very conservative in their lending standards and selective in their deals.

“This means there may not be enough money available to refinance all of the debt that is coming due,” said Lawrence J. Longua, a clinical associate professor at the Schack Institute of Real Estate at New York University.

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Via Infowars