With a record amount of commercial real-estate debt coming due, some of the country’s biggest property developers have become the latest to go hat-in-hand to the government for assistance.
They’re warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years — with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.
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Most residential and commercial real estate borrowers cannot get refinancing at the moment, no matter what.
But it’s not because there is no money to lend or because credit is tight.
It’s because lenders have returned to traditional underwriting standards, such as 80% LTV ratio, AND PROPERTY VALUES ARE OFF MORE THAN 40%.
IOW, since the property is now substantially less than the original loan, the borrowers simply cannot meet the LTV criteria.
If lenders don’t modify loans, many if not most of those loans will default.