The current state of commercial real estate investing and commercial mortgage rates is probably best introduced with the opening sentence of a May 4, 2015 Huffington Post article that states “If you haven’t yet heard about the ‘Wall of Maturities’ in the commercial mortgage market, you will soon.”
In other words, the status of CMBS and commercial real estate investing is in a tricky spot right now — even though it’s been months since that article was originally posted — and the fact is that the trouble isn’t about to end anytime soon. This doesn’t mean that it’s bad time to invest in commercial real estate, nor does it mean that reasonable commercial mortgage rates are going to be impossible to find.
But if you’re looking for a brief understanding to what happened with CMBS — and what’s going to happen with them in the future — here are a few key points to know:
- Economists estimate that between 2014 and 2015, there will be $346 billion worth of CMBS maturing; in 2016, the industry will hit its peak at $113 billion. Out of the entire $1.4 trillion worth of commercial mortgages that will be maturing during this time, it’s estimated that CMBS will make up a quarter of this amount — meaning that an estimated 11,000 CMBS will be maturing.
- As the Huffington Post explained, this means that over $300 billion worth of commercial real estate loans will need to be refinanced — and this is a problem, because it’s going to be 2.5 times greater than the amount of loans that matured between 2012 and 2014.
- How did this happen? It’s really not the fault of commercial real estate lenders, because the industry has maintained strict regulations for lending processes. But when the Great Recession hit in 2008, many commercial loans were due around that time — and debtors had a lot of trouble paying everything back.
Keep in mind that it’s not the end of world — the real estate industry is always going to have its ups and downs, and it’s possible to get through this period if you’re careful with your investments.