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Worst May Be Ahead as $430B of CRE Debt Comes Due in 2021

The coronavirus outbreak helped push about $146 billion of commercial real estate into distress, serious risk of bankruptcy or default at the end of last year, concentrated in hotels and retail, Bloomberg Business reported, citing data compiled by Real Capital Analytics. However, Bloomberg reported that for commercial properties, the worst may still be to come.

“We have tons of stuff that’s in purgatory,” Manus Clancy, senior managing director at Trepp, told Bloomberg. “The workout notes every month say the special servicer and the borrower are talking about forbearance and extension.”

Bloomberg reported that a glimpse of what lies ahead is provided by the $540-billion market for mortgage loans bundled into securities. About 7.58% of the total were at least 30 days late on a payment in January, led by 19.19% of hospitality loans and 12.68% of retail loans, according to Trepp.

The special servicing rate, a harbinger of default, was 9.72% for the overall market, including nearly a quarter of hospitality loans and 17% of retail loans.

Roughly $430 billion of commercial real estate debt comes due this year, out of $2.3 trillion that matures over the next five years, according to Morgan Stanley. That’s in contrast to the dwindling pile of distressed corporate bonds and loans, which has shrunk to around $110 billion from almost $1 trillion last March as firms exit bankruptcy and markets rally.

Investors raised a record amount of capital for distressed-debt strategies last year, and there’s still $84 billion sitting on the sidelines, according to the latest data from Preqin. With commercial property distress gauges at the highest level since 2013, those investors will have plenty of places to put their money to work, Bloomberg reported.

“This is by far the most active distressed and opportunistic market for commercial real estate that I’ve seen in my 15-year career,” said Adam Sklar, a portfolio manager at Monarch Alternative Capital, whose $9-billion fund specializes in those strategies.


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About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).