In June 2023, CBRE released a report stating that there was a significant funding gap of $72.7 billion for office loans maturing between this year and 2025. This issue was not present in other property sectors at the time. The company defined funding gaps as investors being forced to refinance at a lower loan-to-value (LTV) ratio or when the value of their property had decreased since origination.
However, according to a recent report from CBRE Econometric Advisors, the office debt funding gap has now increased to $82.9 billion and there is also an evident $21.7 billion gap for multifamily properties. This is due in part to including 2021 vintage loans in the analysis, which further increases the total funding gaps for both office ($112.8 billion) and multifamily ($44.54 billion) properties with loans coming due between now and 2026.
CBRE Senior Research Data Analyst Michael Leahy explained that “vintage” refers to commercial mortgages issued in 2021 specifically by many multifamily investors who used short-term floating-rate debt with low interest rates at that time as means of purchasing properties.” However, he added that this strategy may have negative consequences catching up with some investors.
It should be noted though that just because loans are maturing does not automatically mean distress or foreclosures will occur; it’s only when coupled with declining values and limited credit availability do these issues arise,” said Leahy.” In such cases owners must put forth more capital towards their properties but if unable or unwilling defaults can result.”
While last summer saw headlines about potential distress related CRE loan maturities mainly focused on offices sector; however currently multi-family sector has been added into mix during fall season . One question worth asking then would be whether retail & industrial sectors could follow suit? According Michael Leahy though ,that isn’t likely right now .
He explained that “industrial sector has seen enough value gains in recent years to offset any decline in credit availability.” As for retail, the sector had less debt originated than other sectors between 2018-2021 and a smaller portion of short-term debt according to Leahy.
