Weak Links in US Commercial Real Estate May Appear in 2017

A Bloomberg article from January 24th lays out a case for why commercial real estate finance may face headwinds in 2017. The article states that many 10-year mortgages made in 2007, just before the financial crisis, are set to mature this year, and that some property owners or landlords may face difficulty in refinancing those mortgages. The article notes that banks sold a record $250 billion of CMBS in 2007, followed by a near-freeze and panic as the financial crash unfolded in 2008. However, as the CMBS market began to rebound, it helped to propel the rise of property values in places like San Francisco and New York.

According to the article, years of low interest rates during the crisis made commercial lending viable, but cites S&P analysts as predicting that about 13 percent of real estate loans coming due will default, up from an 8 percent default rate over the past two years. The article notes rising interest rates, the incoming Trump administration, and risk retention requirements as reasons why financing may be more difficult to obtain in 2017.

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