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CMBS Research: Soft Landing for Next Maturity Wave
More than $170 billion in loans packaged in commercial mortgage-backed securities (CMBS) will mature during 2020 to 2023. Researchers at Morningstar Credit Ratings, LLC believe the on-time payoff rate will remain healthier than that during the $222.48 billion maturity wave of 2015-2017 because of more selective underwriting standards, rising valuations, and the Fed’s dovish interest-rate outlook amid a slowing economy.
The pipeline of maturities through 2023 rises progressively by year, with $19.76 billion of CMBS debt scheduled to mature in 2020, climbing to nearly $65 billion in 2023, resulting from originators steadily ramping up lending volume coming out of the Great Recession.
Using debt yields, loan proceeds, and loan-to-value ratios as benchmarks, Morningstar’s Steve Jellinek projects the maturity payoff rate will remain steady at roughly 80% to 85% through 2023.
Among the property types backing maturing CMBS, industrial loans will likely have the highest payoff rates because demand for warehouses and flex spaces is outpacing supply and rent growth, and strong absorption is squeezing already-tight industrial vacancy rates. Morningstar’s Jellinek writes, “unlike during the prior maturity wave, when overleveraged retail loans were a major concern, we expect maturing retail loans to have the second-best payoff rate because lenders have shifted toward lower-leveraged, higher-quality properties and retail sales remain healthy.”
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