Categorized | Commercial

Maturation of Commercial Real Estate Loans Causing Worry

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Both borrowers and lenders alike are facing the stark reality that billions of dollars in commercial real estate loans are coming due this year. The loans are coming due at a time that is incredibly different than when they were originated. While the commercial real estate market now struggles amid a troubled economy, the market was thriving five years ago in 2007 when the loans were originated.

There is concern as to how both groups will handle the maturation of the loans. Analysts believe that there will be a number of refinancings, and quite possibly, building sales. Some areas of the country will clearly be hit harder than others. For example, more than thirty loans totaling more than one hundred and fifty million dollars are set to come due to Southwest Florida.

Because those loans were prepared when commercial property values were at booming highs, it is likely that they will very tough to refinance.

One of the reasons why the maturation of commercial real estate loans is raising such concern is that they typically require a balloon payment immediately after they have matured. The balloon payment is largely due to the fact that only interest on the loan had been paid during the first five years of the loan. In addition, the number of lenders in the commercial loan market has declined, which means it will be tough to find enough money to refinance the majority of the loans set to mature.

There is no clear indication as to how many of these loans will be handled on a nationwide scale, though there are now concerns that the maturation of these loans will serve as another setback to the commercial property market.

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About Drew Wilson

Drew focuses on the Commercial and Mortgage/Finance categories.

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