LOS ANGELES—As around $200 billion of maturing loans comes up for renewal over the next few years, the CMBS market is set to soar with huge potential for lenders to increase their books. Those thoughts are according to Frank Romeo, president of Partner Engineering and Science, who recently caught up with GlobeSt.com for out all things retail coverage around the ICSC RECon event last week.
Romeo tells GlobeSt.com that some zombies may be lurking within this wall of maturities. “With Freddie and Fannie claiming much of the multifamily offering, many of the renewals will involve retail assets—in fact, Trepp estimates that nearly 30% of maturing CMBS loans are backed by retail properties.”
Lenders must be particularly careful to consider functional obsolescence risks to ensure they're not left with underperforming asset types in their portfolio, he continues. “The emergence of online shopping has had a profound impact on retail real estate, with many big-box and traditional retail assets forced to close their doors, causing developments to lose anchor tenants. These obsolete assets will have loan-to-value ratios nearing 100%, and will therefore have a very difficult time being refinanced, particularly in today's tightened regulatory and credit climate.”
Mirroring Trepp's estimation, a significant percentage of CMBS transactions that Partner Engineering & Science works on include a retail component, and Romeo expects that least $60-billion of CMBS debt will be adversely affected by retail closures. “Retail assets that looked like blue-chip deals 10 years ago now carry an elevated risk of term or maturity default—creating the argument that 'future obsolescence' should be considered as part of lenders' standard underwriting procedures.”
LOS ANGELES—As around $200 billion of maturing loans comes up for renewal over the next few years, the CMBS market is set to soar with huge potential for lenders to increase their books. Those thoughts are according to Frank Romeo, president of Partner Engineering and Science, who recently caught up with GlobeSt.com for out all things retail coverage around the ICSC RECon event last week.
Romeo tells GlobeSt.com that some zombies may be lurking within this wall of maturities. “With Freddie and Fannie claiming much of the multifamily offering, many of the renewals will involve retail assets—in fact, Trepp estimates that nearly 30% of maturing CMBS loans are backed by retail properties.”
Lenders must be particularly careful to consider functional obsolescence risks to ensure they're not left with underperforming asset types in their portfolio, he continues. “The emergence of online shopping has had a profound impact on retail real estate, with many big-box and traditional retail assets forced to close their doors, causing developments to lose anchor tenants. These obsolete assets will have loan-to-value ratios nearing 100%, and will therefore have a very difficult time being refinanced, particularly in today's tightened regulatory and credit climate.”
Mirroring Trepp's estimation, a significant percentage of CMBS transactions that Partner Engineering & Science works on include a retail component, and Romeo expects that least $60-billion of CMBS debt will be adversely affected by retail closures. “Retail assets that looked like blue-chip deals 10 years ago now carry an elevated risk of term or maturity default—creating the argument that 'future obsolescence' should be considered as part of lenders' standard underwriting procedures.”
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
