Between now and 2017, over $300 billion in Commercial Mortgage-Backed Security, also known as Conduit Loans (“CMBS loans”) will need to be refinanced. What does this mean and why is it important?
Many of the current CMBS loans were made at the height of the real estate bubble, around 10 years ago and now, many commercial real estate owners find themselves in a bit of a pickle. What does that mean for commercial real estate in the South Florida? All classes of commercial real estate properties experienced some measure of delinquencies throughout 2014, but now, a handful of borrowers are faced with aging assets that they are unable to reposition. The reason for this, in many cases, can be traced to the growing demand of new and renewal tenants in multifamily, office and retail properties.
What does that mean for real estate transactions in 2015? It’s simple, if CMBS loans facing maturity continue defaulting at greater levels, rather than upgrading a property, these commercial real estate owners will be forced to replace financing on older properties. This replacement financing comes at a time when most secondary markets are experiencing competitive pricing along with demand for updated space. Rather than buying new properties, these developers and owners are taking measures to refinance these CMBS loans.
For now, interest rates continue to remain historically low, but this love affair with low rates may end soon, creating a quick cool off period for the real estate market. Low rates, along with other factors, such as availability of capital and relaxed underwriting standards, are forcing developers and owners to move quickly to lock in the most favorable rates.
Moral of the story: Lock your rate before it’s too late.
Khani & Auerbach is a law firm that focuses a majority of its practice on both residential and commercial real estate transactions. Contact us for more information.