Sometimes waves are “gnarly”
By Kevin Duty
Wave of Maturities
12 months ago, the coming “wave of maturities” was the talk of the industry. Tens of billions of dollars in CMBS debt was/is maturing in 2016 and 2017 and nobody knew what was going to happen. Would there be a 2008-like shortage of refinancing capital? Would the “good times roll” despite a generally weak economic recovery from the recession of ’14 & ’15? All sorts of monetary “bets” were placed on the answer to that very question.
Then, in 3Q 2015, a funny thing happened, loans started maturing (the leading edge of the “wave”) and they found a refi market flush with capital, even if property values had fallen, somewhat. Now, that’s not to say that ALL loans were getting refinanced, but, many borrowers who were afraid that they wouldn’t be able to find reasonable take-out financing were pleasantly surprised to find money available to them at mostly reasonable terms.
Enter 2016, when the rate of maturities is trending upward, as the volume of the “wave” increases. Once again, the market is showing its fluid nature and things are changing. A continuing weak/unsteady economy, falling energy prices and other factors are causing the “domino effect”: CMBS bond spreads widen thereby making them more expensive to purchase and less profitable. That makes it harder for bonds to be sold and securitizations of loan pools to close. If pools don’t close, originators get stuck with loans they can’t sell, which causes originators not to originate.
Net result? We’re back where we were a year ago. Suddenly the “wave” looks much bigger and much more menacing than it did at the first of the year.
What do we predict for the remainder of the year? Change. Whether or not that change will be good or bad is much too difficult to say. If I knew that, I’d be investing like crazy and I’d be rich. There are way too many factors involved to predict them all accurately. Some people think the market will remain “frothy” until after the election. Time will tell.
If you’re a CMBS investor with a loan maturing in the next 12 months, start working on your refinancing NOW! You may likely need all the time you can get.
Lastly, fasten your seatbelts, the next year is likely to be an interesting ride!