Commercial Real Estate Advisory Firm Zeroes in on Hardest Hit Areas
DALLAS, TX(July 31, 2015)–1stService Solutions, theindustry-leading commercial mortgage backed security (CMBS) borrower advocate and commercial real estate (CRE)advisory firm, is warning the industry of a looming financial problem, hoping to draw attention to some of the areas hardest hit bytroubled CMBS loans.
“Our research indicates that while much of the recovery in the commercial real estate market is real, the CMBS maturity market remainson shaky ground,” states Ann Hambly, founder and CEO of 1stService Solutions. “Geographically speaking, the Las Vegas, Phoenix and Chicago markets are showing signs of severe distress forCMBS borrowers.”
Some recent statistics bear out this warning as fact. According to research from GlobeSt.com, the followingmarkets are in bad shape andpaint a precarious pictureof CMBS loans set tomature before the end of 2017:
- Chicago market:194 CMBS-financed properties, 53 of which have a loan-to-value (LTV) ratio greater than 100 percentand 112 loans with an LTV greater than 80 percent
- Phoenix market:150 CMBS-financed properties, 32 of which have an LTV greater than 100 percent and 80 loans with an LTV higher than 80 percent
- Las Vegas market:106 CMBS-financed properties, 30 of which have an LTV greater than 100 percent and 60 loans with an LTV greater than 80 percent
In each of these three markets, over half of all CMBS loans are overleveraged. These extremely high loan-to-value ratios indicate oneprecipitous conclusion—these CMBS borrowers likely won’t be able to pay off their notes at maturity without some form of assistance.And CMBS servicers aren’t likely to offer flexibility when it comes to repayment.
These local snapshots focus on some of the worst examples of CMBS loan distress, but the issueneatly mirrors a nationwide problem that likely won’t concludeprior to 2017. This is because these 10-year notes,originated before the financial meltdown in 2008,were very aggressively underwritten.
While many casual observers are inclined to deem this an internal problem for the commercial real estate industryand unlikely to affect them personally, consider this: CMBS loans are owned by bondholders, some of which include a wide-reaching varietyof public pension funds. These include fire, police and other civic organizations scattered throughout the country.
“The commercial real estate industry and especially borrowers with CMBS loans need to heed these warning signs,” Hamblyexplains. “Time isrunning out, and the focus on solutions tothis coming crisis needsdiscussion and action before it’s too late. At 1stService [Solutions], we have a saying: ‘Deal with it
now…or you’ll experience it later.’”