Commercial borrowers struggle to repay loans maturing in May

About $9.4B was unpaid from about 790 loans that came due last month

Jun.June 14, 2017 12:15 PM

View of Greater Downtown Miami from Panorama Tower’s rooftop

The number of commercial mortgage borrowers failing to repay their loans was up last month.

In May, commercial real estate mortgage borrowers paid off maturing loans at a slower rate, according to Morningstar Credit Ratings LLC. In 2007, borrowers took out 10-year loans that were repackaged into commercial mortgage backed securities. This partially explains the uptick in the number of unpaid and delinquent loans, the Wall Street Journal reported.

About $9.4 billion was unpaid from about 790 loans that came due last month.

The real estate market has been preparing to deal with a wall of 10-year maturities, and last month there was an increase in borrowers that either failed to repay their debts or defaulted on monthly payments.

“It’s all because of the riskier nature of the loans originated 10 years ago,” Steve Jellinek, a Morningstar vice president told the newspaper. “Today, with more conservative lending standards, they can’t get refinancing.”

About 64.9 percent of the 790 loans were repaid by landlords in the six months leading up to May, which is a striking difference from previous months – in April, 71.5 percent of mortgages were repaid, and in 2016, it was slightly higher than 80 percent.

Nearly 18 percent of commercial mortgage securities loans that reached maturity in the past 12 months were delinquent. From June 2015 to April 2016, the average was about 10 percent.

The internet and millennials have reshaped the real estate market in recent years in a way that 2007 borrowers would have never ventured to guess, according to Jellinek. As a result of the rise of e-commerce, retailers are finding it increasingly difficult to refinance their loans. In addition, the millennial demand for urban, downtown office space have strained suburban office spaces to the point of defaulting on loan repayments. [WSJ] – Grace Guarnieri

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