This Analyst Believes Banks Will Extend CRE Loans As Maturities Come Due

Article originally posted on Globe St. on April 26, 2023

No one is quite sure what will happen when the wave of CRE loan maturities start to come due this year and into the next few.  Aaron Jodka, Colliers’ research director of U.S. Capital Markets, has his theories though. He believes that banks and other lenders may be willing to renew or extend loans for the coming wave of maturities coming due as long as they meet coverage ratios. He also believes, according to a post he wrote, that borrowers who had interest rate swaps should be able to work with lenders on rate buydowns. “Ultimately, this will buy time, smooth out maturities and push some loans into the future,” he wrote.

Obviously, the CRE community greatly hopes Jodka is on target in his analysis of how property assets will be received by the banking community. “Debt is still available, despite the recent volatility in the banking sector,” he wrote. “The middle markets are still active, particularly between banks with longstanding relationships with borrowers. Life companies are fighting to win deals and need to put capital to work.”

Jodka offers one caveat to his anticipated scenario: The large loan space is more restrained and local and regional banks are not stepping in and filling this void.

In the meantime, the CRE loan maturities are looming. The Mortgage Bankers Association estimates that $4.47 trillion of commercial real estate loans are on lenders’ books. About three-fifths or 60% of these loans are due in four years or by 2027. The largest share of maturities over this period come from the multifamily segment, which is expected to top $1 trillion. And sooner—during this year, more than $700 billion in loan maturities is coming due, with not just multifamily but also office facing the largest share. In the short term, the asset classes facing the greatest maturity wall are hospitality and office. Between this year and next, 54% of hospitality loans are expected to mature while 40.9% of office loans will. More than half of these loans are estimated to be on bank balance sheets.

Will banks come through for CRE borrowers when they are in the thick of these loans? It remains to be seen but it should be noted that Moody’s Investors Service downgraded 11 regional lenders this past Friday. The reason given is that they are more exposed to commercial real estate. The downgraded lenders are U.S. Bancorp, Zions Bancorp, Bank of Hawaii, Western Alliance Bancorp. First Republic Bank, Associated Banc-Comerica Inc., First Hawaiian Inc., Intrust Financial Corp., Washington Federal Inc. and UMB Financial Corp.