Bloomberg News

CMBS Refinancing Prospect Dims as 2007 Deals Mature, S&P Says

December 20, 2011

Dec. 19 (Bloomberg) -- More than half of commercial mortgages packaged into bonds in 2007 and coming due next year may fail to refinance as maturities reach the most ever and lenders pull back, according to Standard & Poor’s.

About $55 billion of property loans sold as securities come due in 2012, with $19 billion of those originated in 2007, S&P analyst Larry Kay said in a report today. The five-year mortgages have a 50 percent to 60 percent likelihood of failure to refinance, the New York-based analyst said.

Next year will “usher in the first major wave of maturities from the 2007 vintage, which were issued during a frothy period at the peak of the market,” Kay said. “Retrenchment in the capital markets and among other lenders in the third quarter of 2011, which has continued into the current quarter, dims the refinancing prospects.”

Late payments on loans packaged into bonds are at 9.13 percent, up from 8.89 percent in January, according to the report. S&P forecasts delinquencies will rise to between 9.5 percent and 10 percent in 2012.

Loans underwritten during the peak five years ago will be challenged by tighter lending conditions, limited borrower equity in the buildings and the large size of loans relative to current property values, S&P said. Property values have tumbled 42 percent since 2007.

Lenders are willing to write a mortgage for a maximum of 70 percent of a building’s value, meaning about 63 percent of loans taken out at the height of the property market bubble will be hard to refinance unless the borrower injects additional cash, S&P said.

Retail Properties

Retail property owners will have the most difficulty securing financing, according to S&P.

“This sector has had the lowest percentage of maturing loan payoffs and continues to grapple with historically high vacancy rates and falling rents,” the report said.

Shopping centers and malls had the lowest refinancing rate at 43.3 percent in the third quarter, according to S&P.

Wall Street banks arranged about $28 billion in bonds backed by commercial mortgages this year, compared with $11.5 billion in 2010, according to data compiled by Bloomberg. Issuance peaked at $232 billion in 2007. S&P predicts $35 billion in 2012 sales.

JPMorgan Chase & Co. and Wells Fargo Securities had been predicting from $45 billion to $50 billion in 2011 sales before volatility in credit markets forced Wall Street banks to pull back on new originations.

The slowdown was visible in the third quarter this year as fewer loans paid off than in the first two quarters, according to S&P. About 56 percent of loans paid off at maturity in the third quarter, down from more than 67 percent in the prior three-month period, the report said.

--Editors: Pierre Paulden, Dennis Fitzgerald

To contact the reporter on this story: Sarah Mulholland in New York at

To contact the editor responsible for this story: Alan Goldstein at

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