Mick Stapleton, The Daily Record Newswire
Nationally, current economic conditions like low interest rates and ever-increasing uncertainty abroad have made commercial mortgages a prudent investment. Though interest rates have increased this month for the first time in almost a decade, Federal Reserve Chairwoman Janet Yellen has cautioned against any aggressive increase in rates, citing that doing so would undermine economic expansion and necessitate a lasting return to low interest rates. As such, banks wanting to make fees are especially motivated to take advantage of low interest rates right now. Life companies, which make loans as stocks and bonds alternatives, are also proactive in the market because commercial mortgages are relatively stable in comparison to volatile foreign markets and geopolitical turmoil.
In the initial wake of the Great Recession, many underwater commercial assets or transitional properties were recapitalized through private-lending sources with the long-term strategy of attaining conventional financing after stabilization. Transitional properties are loosely defined as having capital, maintenance or location issues, and these properties most definitely bore the brunt of the economic downturn.
Over the past few years, however, the strengthening economy has created increasing opportunities for these distressed properties to secure financing. As such, private lenders are ready to work with building owners to regain the true value of these types of properties. Cash-out refinances can help existing properties compete in today's market, and there is equity available for solid construction projects too.
Yet, not all transitional property types are out of the woods. A massive number of loans underlying commercial mortgage-backed securities (CMBS) will mature over the next few years and spur tremendous refinancing demand. CMBS issues peaked prior to the Great Recession between 2005 and 2007. According to a report by Trepp LLC, a provider of information and analytics to the CMBS, commercial real estate and banking markets, 10-year balloon terms were attached to a majority of these loans, thus causing a domino effect of maturities set to begin in 2016 and carry through 2017. Trepp LLC also reported that an excess of $300 billion in CMBS loan balances are scheduled to mature, which is more than double the amount that matured between 2012 and 2014.
Transitional properties that have maturing CMBS loans may not qualify for refinancing or a permanent loan due to the asset's risk in the market. As a possible solution, bridge loans are short-term loans that bridge the gap between loan types, and are particularly useful for transitional properties. As such, bridge loans are expected to increase steadily over the next three years.
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Finance Officer Mick Stapleton specializes can be reached at mstapleton@nbsfinancial.com.
Published: Mon, Jan 04, 2016
