Almost $1.5 trillion of US commercial real estate debt comes due for repayment before the end of 2025. The big question facing those borrowers is who’s going to lend to them?
“Refinancing risks are front and center” for owners of properties from office buildings to stores and warehouses, Morgan Stanley analysts including James Egan wrote in a note this past week. “The maturity wall here is front-loaded. So are the associated risks.”
The wall of debt is set to get worse before it gets better. Maturities climb for the coming four years, peaking at $550 billion in 2027, according to the MS note. Banks also own more than half of the agency commercial mortgage-backed securities — bonds supported by property loans and issued by US government-sponsored entities such as Fannie Mae — increasing their exposure to the sector.
Rising interest rates and worries about defaults have already hurt CMBS deals. Sales of the securities without government backing fell about 80% in the first quarter from a year earlier, according to data compiled by Bloomberg News.
Still, when apartment blocks are excluded, the scale of the problems facing banks becomes even starker. As much as 70% of the other commercial real estate loans that mature over the next five years are held by banks, according to the report.
European real estate issuers, meanwhile, have the equivalent of more than €24 billion due for repayment over the remainder of the year, Bloomberg Intelligence analyst Tolu Alamutu wrote in a note.
What to watch in the days ahead:
The coming week will offer updates on inflation around the world, with US consumer-price index data on Wednesday, followed by Germany CPI on Thursday and figures for France and Spain on Friday.
For an in-depth look at the data and events around the world that could impact market sentiment this week, see this on the Bloomberg terminal and choose a region.
Investors snapped up Europe’s first subordinated bond sale in almost a month after the market for such debt was effectively shut by Swiss regulators’ decision to wipe out $17 billion of Credit Suisse AG’s junior notes. Meanwhile, a global index linked to so-called contingent convertible bank bonds rebounded, reaching levels seen before the Credit Suisse bond writedown.
A group of Canadian Pacific Railway Co. creditors are trying to have $2.4 billion of bonds repaid early — and at a premium — after they say the company missed a deadline tied to its acquisition of Kansas City Southern, Bloomberg News reported Thursday. The efforts are being contested by the company, which says its requirements have been satisfied.
China Evergrande Group, the developer at the heart of the nation’s property crisis, said it signed restructuring support agreements with some dollar bondholders backing its proposed debt restructuring. Meanwhile, another Chinese builder, Shimao Group Holdings Ltd., is circulating draft restructuring offers to advisers of an ad-hoc bondholder group.