Q&A: Newmark’s Michael Heagerty and the Wall of CMBS Maturities

By Dennis Kaiser

San Francisco-based Newmark just completed a $15-million, cash-out refinance of the Embarcadero Center in Oakland, CA. The transaction highlights some of the struggles CMBS borrowers are facing in today’s market. When the original CMBS loan was placed, terms were reflective of 2007 market valuations, and underwritten accordingly. The challenges facing the office park owners – a single tenant lease extension in negotiation and a land lease under the property – during maturity created significant hurdles to retiring its CMBS debt.

The commercial mortgage banking firm’s team of producers secured a five-year, fixed rate loan with a 25-year amortization, arranged after the property was correctly underwritten. Newmark’s Michael Heagerty shares insights about what’s ahead for the CMBS market, and ways to navigate the wall of maturities on the horizon.

Q: How serious of a situation is the wave of CMBS maturities set for 2017?

A: The CMBS maturities are still pretty significant in 2017 at about $100 billion, according to the Mortgage Bankers Association. The issue is that many of the closings are already in process with non-CMBS commitments and forwards. In addition, many of the maturities are front loaded in the first half of the year with a steep drop off in the second half of the year and continuing through 2018 to 2020.

Q: What are the challenges facing CMBS borrowers in today’s market climate when they are refinancing? 

A: It depends on how the loan was originally structured 10 years ago, and future planning. Many of the loans in 2007 were interest-only and therefore have not amortized as much as earlier vintage loans of even a few years ago. Additional equity, property repositioning or structure is often needed, so several bridge and alternative lenders have popped up recently. For the strongest quality projects, capital from life insurance companies, GSEs and banks is still plentiful.

Q: How is Newmark working with Clients to achieve successful outcomes in CMBS debt placement?

A: The key is to dive into the future plans for the project and borrower. Many of these issues can be resolved with proper structuring by a seasoned mortgage banker as an advisor. If repositioning of the property or a sale is on the horizon, they may want to consider other capital sources. A refinance with CMBS capital is still an option, but the borrower needs to go in with an educated understanding of the mechanics of the CMBS structure over the duration of the loan. When the CMBS alternative is chosen, engaging a cashiering primary servicer for the post-closing is critical to receiving quality customer service for timely reserve releases, lease approvals and special/master servicer relationship management.

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For comments, questions or concerns, please contact Dennis Kaiser