A Wave Of Loan Maturities Is Coming. Act Now Before It Hits

Amid the many unknowns the commercial real estate industry faces is the question of what will happen when the next wave of loan maturities rolls in. According to the Mortgage Bankers Association, an estimated $4.5T of CRE loans are on lenders’ books, 60% of which are due in the next four years. 

In the last few years, CRE borrowers who had a loan maturing in the next month or so could often rely on their lender to give them more time or turn to the ample amount of debt in the market. That isn't the case today. 

Jared Schlosser, senior vice president of hotel originations at Peachtree Group, said that where there used to be 10 bids on a refinancing loan, today it is more common to see just two or three, if any. This is why he said borrowers need to start planning well ahead of their maturity date. 

“Every deal you do today is hard,” Schlosser said. “It's better that a borrower knows what to do before the loan matures instead of waiting until the last minute. This way, borrowers can do their due diligence and have options on the table in case they need to pivot.” 

Schlosser said that for many lenders today, the ideal permanent debt yield is 13% to 14% or higher. This means if a property doesn't have that type of cash flow, borrowers will have to turn to private capital unless they can provide the bank with a large amount of deposits to convince them to lend. He said that values are starting to move and move quickly, while appraisals are lagging, so the longer one waits for a refinance, the lower proceeds they may have. 

“Lenders like to see some level, even small, of cash in refinance,” Schlosser said. “They want to see the borrower committed to the asset.” 

So what steps can borrowers take to make the refinancing process go as smoothly as possible in today’s economic climate? Schlosser recommends they have their documents ready, including personal financial, pro forma, budgets, franchise agreements and beyond. This will help expedite the process, which is important because the longer the process is stretched out, the more risk there is of something derailing it. 

Peachtree Group, Schlosser said, has been consistently lending for over a decade, including in these uncertain times.

“We built a brand on reliability and doing what we say we are going to do,” he said. “If you have a maturity coming up, you cannot afford a false start or an inexperienced lender dropping the ball.” 

One of the projects that the company was instrumental in with certainty of execution was the Hampton Inn at LaGuardia Airport in New York City, where it helped the client close by its CMBS loan's maturity date.

“We liked the client and how he took care of the property,” Schlosser said. “However, we needed to work fast before the maturity date ended.”

Schlosser said this was challenging due to the tough lending environment in New York City. However, the company was able to move fast and knew how the market worked. Peachtree helped the client meet the target date and secured a loan for nearly $44M.

On another project, Peachtree stepped in midconstruction to help execute a loan for Motif on Music Row in Nashville, which allowed the client more time and cash flow to refinance for a permanent loan of more than $42M.

“Peachtree has a lending and development arm to help make this process more seamless,” Schlosser said. “We know what it takes to get things done with a realistic cost of completion for these types of hotel projects.”

Schlosser recommends that borrowers solve all debt for at least two years, as rates are likely to go up as gross domestic product is expected to grow and inflation is more complex than expected. 

“Having a lender you can trust during the next few years is key, as not even the smarter economists can predict the future right now,” he said.  

This article was produced in collaboration between Studio B and Peachtree Group. Bisnow news staff was not involved in the production of this content.

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