Lenders Grow Even More Skittish As Wave of Maturities Approaches

A Q3 review by Trepp of Federal Reserve Flow of Funds Data estimates that a $2.78 trillion set of commercial loans are coming due by 2027 — an “historic volume of mortgage maturities,” according to the analysis. That includes $536.9 billion of loans in 2023 and $540.6 billion next year. 

At the same time, lenders are becoming even more skittish about financing commercial real estate, especially as Treasury yields continue to climb. 

Total volume of CRE loans held by banks declined during the first two weeks of October, according to Trepp. Most other two-week periods since 2014 have shown positive growth, the Wall Street Journal reported.  Overall, the entire commercial property debt market increased less than 1% in the second quarter – the lowest quarterly rise since the first quarter of 2014, Matthew Anderson, managing director of Trepp, told the WSJ. 

“As a result, many of the properties whose loans are coming due could find themselves overleveraged and in need of additional equity or other rescue capital,” Trepp writes. 

Trepp breaks down the coming mortgage maturities: Banks and thrifts were to see $270.4 billion of the $2.89 trillion of loans they hold mature this year and another $277.1 billion mature next year. CMBS and other securitized trusts were expected to see $103.3 billion of the $780.7 billion of loans they hold mature this year and another $77.9 billion mature in 2024. The remainder of the estimated 2023 maturities are held by life companies, with $42.5 billion; the housing-finance agencies, with $58.4 billion; and other lender types, with $62.4 billion.

That comes with a number of assumptions. First, about 70% of the outstanding CMBS loans originally had terms between six and 10 years, so a weighted average initial term of 10.3 years. The weighted average term for bank- and thrift-held loans was 7.4 years.

In the second quarter of 2023, bank- and thrift-held debt was $2.89 trillion. Insurance companies have $692.09 billion. Combining CMBS and REIT securitized debt was $780.68 billion. Government-sponsored entities held $970.57 billion. Government had $229.72 billion, pension plans held $34.58 billion, finance companies had $39.07 billion, and the other category had $134.02 billion.

That has met the Fed’s monetary tightening, creating difficult conditions that have cut back the volume of transactions out of cost and uncertainty.

“The uncertainty in real estate markets and other economic and banking concerns, meanwhile, has helped push many lenders to the sidelines,” Trepp wrote. “The 10-year Treasury is now yielding closer to 4.81 percent, while short-term rates have at least quintupled since 2016.”

Quoting yield figures at this point does run the risk of simply being unable to keep up with reality. The 10-year closed out October at 4.88%. The 3-month yield was 5.59%. At the same time in 2016 the yield was 0.33%, making the difference almost 17 times. The 1-month went from 0.2% in October 2016 and ended October 2023 at 5.56%, so 27.8 times. 

A comparison to 2016, though, seems too easy. Rates may not have been zero interest rate policy, but they were low. On the shorter-term end, Treasury yields are higher than in 2006 and 2007, the run-up to the Great Recession. The dynamics are different, in that there isn’t a massive number of consumer residences overleveraged and ready to crack, taking down fields of mortgage-backed securities. But it is, maybe, something to consider. Every 10 to 15 years, there is typically a big lurching drop in some part of the financial fabric.