Lenders are getting choosier as a $90 billion wall of maturing commercial mortgages approaches, reports Bloomberg.
“There are a lot more problem loans out there than people think,” said Ray Potter, founder of R3 Funding, a New York-based firm that arranges financing for landlords and investors. “We’re not going to see a huge crash, but there will be more losses than people are expecting.”
S&P analysts are predicting that about 13 percent of real estate loans coming due will ultimately default, up from 8 percent over the past two years, according to Dennis Sim, a researcher at the firm. That’s their base case, but the default rate could be higher, he said.
Rising interest rates and regulatory constraints for banks also are going to make it hard for weaker borrowers to refinance their loans on favorable terms, experts say. Lenders are most worried about vulnerable malls and hotels and office towers in overheated markets, the report says.