“If liquidity in the market remains high, these coming maturities should not pose a problem.”
Outstanding CRE debt hit a new record in the third quarter at $5 trillion, fueled by liquid capital markets and pricing strength throughout commercial real estate asset classes.
New analysis from Trepp’s Matt Anderson notes that while some lenders paused lending in 2020, others—mostly GSEs, life companies and REITs—filled the void.
“The unabated growth of the CRE debt market has resulted in an increasing volume of CRE loans maturing in the next several years,” Anderson says. Annual maturities will reach an estimated $452 billion in 2022, a new annual record.”
Trepp estimates that $2.3 trillion of commercial real estate debt will mature over the next five years. In previous downturns, experts observed net contraction in outstanding loan amounts as CRE lending declined via a decrease in new loan originations and removal of existing loans through default and foreclosure.
But “the pandemic and its volatile economic impacts have barely had an impact on the aggregate CRE debt landscape,” Anderson says. “Low-interest rates and massive government-led stimulus have certainly helped. So have stronger-than-expected property price trends and lower-than-feared impacts on defaults and foreclosures. The deepest real estate impacts were seen in the lodging and regional mall sectors. But as travel and shopping have recovered—at least somewhat—even these sectors have experienced improved fundamentals in 2021.”
This sustained growth in the debt markets will lead to increasing volumes of maturing debt to the tune of $450 billion in 2022 alone, a new annual record. Trepp predicts that annual maturing volumes will remain above $400 billion throughout the next five years, according to Anderson.
“If liquidity in the market remains high, these coming maturities should not pose a problem,” he says. “Trepp estimates that total CRE origination volume was approximately $640 billion in 2020, an amount that would be more than sufficient to cover future maturities. But if liquidity becomes impaired—either through an interest rate or other market shock—there could be a shortfall in the amount of capital available to refinance the volume of maturing debt.”