Billions of dollars in commercial mortgage-backed securities are coming up for renewal and originators in major markets can cash in
More than $53 billion worth of commercial mortgage-backed securities will require financing in the next two years – marking a massive opportunity for originators in the commercial space.
“Rates are lower today and property values for most of the market have gotten above those previous peak levels,” Jim Costello of Real Capital Analytics told Yahoo Finance. “It’s been a great time to be in commercial real estate.”
Prior to the housing market collapse, investors borrowed hundreds of billions of dollars to purchase commercial properties. Those loans were eventually packaged and sold as securities, and many are about to reach the end of their ten-year mortgage term.
About one third of those loans will require additional financing or they will become underwater, according to Real Capital Analytics.
However, those numbers were once predicted to be much higher.
“Far fewer (will be underwater) than people fear,” Costello said. “There was a big fear that all the 2006 and 2007 originations would be underwater; however, we’ve seen enough price recovery for the underlying assets in terms of if you had to take that asset and sell it on the market today that they’ll be able to pay off the loans or … refinance into a new loan.”
And financing projects in the six major metropolitan areas – New York, Boston, D.C., Chicago, San Francisco, and Los Angeles -- will be much easier, according to Costello.
“Investors have really bought into the growth stories in these urban markets; financing assets in those markets will be much easier,” he said. “The problem areas are the markets really driven by the housing boom.”
However, even players outside those major cities can benefit by providing mezzanine financing for those investors who choose to hold onto their properties, according to Costello who also notes that some investors may choose to sell.
“They may just look at the situation and say, ‘I’ve made some money. I’m going to take what equity I can, sell the building, and walk away,’” Costello said.
“Rates are lower today and property values for most of the market have gotten above those previous peak levels,” Jim Costello of Real Capital Analytics told Yahoo Finance. “It’s been a great time to be in commercial real estate.”
Prior to the housing market collapse, investors borrowed hundreds of billions of dollars to purchase commercial properties. Those loans were eventually packaged and sold as securities, and many are about to reach the end of their ten-year mortgage term.
About one third of those loans will require additional financing or they will become underwater, according to Real Capital Analytics.
However, those numbers were once predicted to be much higher.
“Far fewer (will be underwater) than people fear,” Costello said. “There was a big fear that all the 2006 and 2007 originations would be underwater; however, we’ve seen enough price recovery for the underlying assets in terms of if you had to take that asset and sell it on the market today that they’ll be able to pay off the loans or … refinance into a new loan.”
And financing projects in the six major metropolitan areas – New York, Boston, D.C., Chicago, San Francisco, and Los Angeles -- will be much easier, according to Costello.
“Investors have really bought into the growth stories in these urban markets; financing assets in those markets will be much easier,” he said. “The problem areas are the markets really driven by the housing boom.”
However, even players outside those major cities can benefit by providing mezzanine financing for those investors who choose to hold onto their properties, according to Costello who also notes that some investors may choose to sell.
“They may just look at the situation and say, ‘I’ve made some money. I’m going to take what equity I can, sell the building, and walk away,’” Costello said.
