There was concern about the CMBS maturities hitting the market, reported by Bisnow, based on information from an Avison Young executive. There were several originated in 2006 and 2007 that are now coming to maturity, prompting supposed worry that another wave of payment-delinquent landlords could face serious problems.
Well, those fears have been largely abated.
National Real Estate Investor reports that the worries about potential CMBS delinquencies are being taken in stride, based on data from Trepp. Though they rose 28 basis points, hitting 5.75 percent in June, this is by no means a crisis that the commercial real estate industry has anticipated over the last decade.
According to Trepp, delinquencies have only shot up 115 basis points over the last year. Considering there are so many maturities coming to fruition over that time period, one could think that there would be a potential crisis.
That has not happened, and the industry is not even close to the 10.34-percent rate that took place in 2012.
Part of the reason for that, which commercial real estate should pat itself on the back for, is the success of the overall industry. There is talk about CRE-investor sentiment waning, but that’s because it’s largely been a victim of its own success.
Commercial real estate is on a hot streak. Fundamentals are through the roof in certain major cities, such as San Francisco, New York City and Seattle. With strong fundamentals, and a landlord market in such locales, investors are increasingly looking toward secondary metro areas to put their money for higher returns.
Therefore, defaults will likely be at a lower rate because net-operating income (NOI) for assets is sure to be stronger, meaning that loan payments can be made in an increasingly timely manner.
Another plus is that the Fed has not hiked interest rates in any significant way this year. There could arguably be a bump of another quarter-percentage point by the end of the year. Mixed with a strong stock market and sizable employment growth, it’s unlikely that CMBS loan payments are going to be a major struggle this year or the next.
Commercial real estate has already felt the pain of a difficult overall economy. It’s currently feeling the pain of the desire of investors to continue to see historically high returns. That’s a good problem!
About GRS Group
GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions.
Through the company’s proprietary management process, Global Services Connection, GRS Group delivers an integrated suite of services including Financial Advisory, Transaction Management, Assessment and Title Insurance. We provide a single point of contact, capable of leveraging the GRS Group portfolio of companies, and delivering customized solutions to assist our clients in achieving their investment goals.