Loan maturities represent a critical part of the capital markets story. Maturities can create opportunity for lenders, borrowers and mortgage professionals. Maturities also represent risk, especially when loans mature during down cycles.
CBRE analyzed maturity forecasts from Trepp and the Mortgage Bankers Association (MBA) for insight on the level of maturities in 2020 and the years following.
In 2020, multifamily loan maturities should total $72.9 billion (counting only the main lender categories) up 11.9% from 2019. While the total is higher than the past three years, it falls well under a new "wall of maturities" that is building for the 2022-2026 period. Maturities are an important driver of investment and financing activity. Maturing loans prompt asset sales, new financing and/or refinancing. They create opportunities for lenders, borrowers and mortgage professionals. The lender's liability structure, regulatory limits and return obligations govern many of the options.
Property fundamentals and capital markets conditions also govern the options. When property market conditions are strong and there is abundant debt capital, maturities can usually be handled with ease and can benefit all parties involved. Similarly, if loans mature when interest rates are lower and/or borrowing terms more generous, refinancing may lower borrowing costs for owners. Maturing loans also create risk for borrowers and lenders, especially when loans mature during down cycles or in a climate of higher interest rates. During down cycles, assets typically have lower NOIs, plus a borrower may be challenged by new, tighter loan underwriting standards such as lower LTVs and higher DSCRs. Additionally, during down cycles, some debt capital providers become much less aggressive or move totally to the sidelines, giving borrowers fewer capital options.
COVID-19 has disrupted the capital markets environment, and most properties will see a reduction in NOIs through 2020, making this year a less favorable time for loan maturities. These loans are at some risk. This year's crop of maturities is likely to result in some losses and loan modifications. Mitigating the risk is the fact that most multifamily assets with maturing debt have benefitted from appreciation over the life of the loans. Lower interest rates today should also help borrowers (though spreads over short-term and longer-term rates have widened).
Banks Dominate 2020 Maturities
Bank loans will dominate 2020 multifamily maturities with a total of $52 billion, up 20.8% from 2019.Banks typically provide shorter-term financings, and their mortgage originations rose considerably in the second half of the 2010s thereby creating the high volume of upcoming maturities.
GSE Maturities to Total $11 Billion
Agency maturities should reach $10.8 billion this year, a slight decline from 2019. After 2020, Fannie Mae, Freddie Mac and FHA agency maturities should rise significantly for several years to come, mirroring the rising originations that occurred through the 2010s. Seven to 10 years is the most common term lengths for agency loans.
Lifecos Maturities Rising
Life company maturities are expected to rise to $7.1 billion in 2020 and $8.4 billion in 2021. Like the GSEs, life companies tend to make longer-term loans, but their lending volume has been more stable over the past several years compared to the dramatic ramp up of the agencies. Lifecos also typically have lower loan-to-value ratios, providing some cushion for loans maturing during the 2020 recession and in 2021.
CMBS Maturities to Fall
CMBS maturities should total only $3.5 billion in 2020, down 83.5% from 2017, the last year of the “wall of maturities” (loans originated in the peak years of the last cycle). The low CMBS maturities volume in 2020 and 2021 is a silver lining for the industry since CMBS has the least amount of flexibility for loan modification
Alternative Debt Providers
Maturities are very likely rising from alternative debt providers, including debt funds, mortgage REITs, pension funds, mezzanine and bridge lenders and others. Financing activity by alternative lender rose notably in recent years, and many of these alternative sources typically provide shorter-term financing.
Therefore, the industry can expect to see increased loan maturity volumes from these sources in 2020, 2021 and likely the years following. The volume is not clear, however. Both Trepp and the MBA provide estimates of alternative lender maturities (as one "other" group). At this point, we are not confident in these statistics.