The Difficulties in Refinancing the CMBS Debt

    by Aditi Bansal

Updated on Tuesday, June 27, 2017

There is a lot of anxiety among market watchers when it comes to the maturity of loan debt used in securing the mortgage-backed securities (CMBS).With the constant rise in property value and the convenience of accessing capital, it’s expected that the loans will pay off once they mature. 

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The concern became evident when approaching the first quarter of 2016, and by September of the same year, the CMBS maturing loans pay off rate was at 75.6%. This means that almost 24% didn’t make it to the cut with the Morningstar credit rating projecting an average yearly payoff at between 70 to 75 percent. 

Developing a streamlined refinancing plan

It’s easier for most people in the commercial real estate to believe that with a creatively designed debt instrument serving as a refinancing tool their loans would quickly pay off at maturity. It can be the only way of refinancing the current debt. There is a debt yield of 8 percent for maturing loans with LVT of 80 percent, which represents 51 percent of the remaining maturities and it’s high time for borrowers to find refinancing suited to pay their loan.

The borderline options

A well structured high-LVT debt instrument can be useful for the CMBS loans with an LVT of between 80 to 85 percent. Such a high financing is short term and expensive too and can be projected on clients with properties that are appreciating in value. For loans with LVT of between 85 to 100 percent, homeowners should consider whether the few years’ extension will provide a payoff or if they are worth keeping. 

Beyond salvation

Loans with an LVT of 100 percent are under the difficult categories and represent about 30 percent of loans maturing in 2016. There is also no debt financing to curb such deals and a sale won’t work unless a seller is paying more. A term extension would be considered if the loan is cut to a considerate amount, but the option here is for homeowners to release the property to a trust. 

It’s important for the mortgage brokers to understand the options available for property owners with CMBS loans higher than the lending market rate before the loan's maturity date unless the owner is ready to invest a lot of capital to pay the existing loan. 

This page has a focus on Refinancing plan, Mortgage Backed Security was shared by Aditi Bansal.

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