Landlords Face A $1.5 Trillion Bill For Interest-Only Commercial Mortgages

Authored by Mike Shedlock via MishTalk.com,

Interest-only loans as a share of new commercial mortgage-backed securities issuance increased to 88% in 2021, up from 51% in 2013, according to Trepp…

Share of Interest Only Commercial Mortgage Backed Securities 

Commercial Real Estate Bust

A trend to walking away from commercial mortgages is just beginning. The Wall Street Journal reports Interest-Only Loans Helped Commercial Property Boom. Now They’re Coming Due.

Interest-only loans as a share of new commercial mortgage-backed securities issuance increased to 88% in 2021, up from 51% in 2013, according to Trepp. Nearly $1.5 trillion in commercial mortgages are coming due over the next three years.

Fitch Ratings recently estimated that 35% of pooled securitized commercial mortgages coming due between April and December 2023 won’t be able to refinance based on current interest rates and the properties’ incomes and values. While many malls and hotels face high default risks, the situation is particularly dire for office owners. 

Mark Edelstein, chair of law firm Morrison Foerster’s global real-estate group, said he is seeing more lenders take over office buildings than at any point since the early 1990s. 

Oblivious to Risks

Lenders and  borrowers had widespread belief in two things, both now proven false.

• Interest rates would stay low forever

• Property values, already clearly in a bubble, would keep rising forever

Now a $1.5 trillion  bill is coming due, with property values, especially office space and some big city hotels, plunging like a rock.

83 Percent on Securitized Office Loans in Trouble

Xiaojing Li, managing director at data company CoStar’s risk analytics team, estimates that as much as 83% of outstanding securitized office loans won’t be able to refinance if interest rates stay at current levels.

The 1,921 Room Hilton Union Square Hotel in San Francisco Was Just Abandoned

Yesterday, I noted The 1,921 Room Hilton Union Square Hotel in San Francisco Was Just Abandoned

Park Hotels & Resorts also walked away on the nearby 1,024-room Parc 55. Park Hotels & Resorts cited the continued debt burden of the two hotels and multiple factors that have made the San Francisco market less desirable.

Well, don’t worry. Lenders who are handed back the keys can recoup their losses if they borrow money and plow it all into Nvdia and Apple with leverage. /sarcasm

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