‘Wave of Foreclosures’ Expected to Hit Commercial Real Estate Market

The pandemic has hit commercial properties hard – especially restaurants, retailers and hotels, which are having a hard time making mortgage payments because of reduced business. As a result, the industry is facing a “wave of foreclosures” over the next several quarters, according to securities data company Trepp, which warned that “borrowers may be strategically defaulting on their loans.” Borrowers with loans coming due in 2021 or before have stopped making payments at a rate six times greater than those whose loans are due later, according to Trepp (a 1.66 percent delinquency rate compared to 0.27 percent, respectively). That suggests such borrowers, believing they will not be able to find financing to keep their buildings when their current loan expires, are cutting their losses by defaulting sooner, rather than later. Stopping payments can also put pressure on a lender to negotiate with the borrower, said Matt Anderson, managing director at Trepp. While data suggest owners of smaller properties are more directly impacted by the recession — loans with balances of less than $1 million have a delinquency rate twice that of the overall portfolio — larger property owners appear to be most aggressively cutting their losses. The term of a commercial real estate loan generally comes due before it is fully paid off. When the loan expires, or becomes mature, borrowers generally take out a new loan to pay off the first – a practice that allows both sides the flexibility to reset the terms to better reflect market conditions and the borrower’s financial state. Click to read more at www.lmtonline.com.