$1.5 Trillion of Maturing Commercial Mortgages Pose Default Risks

With approximately $1.5 trillion in commercial mortgages set to mature in the next three years, there are increasing concerns about potential defaults. Many of these mortgages are interest-only loans, which became increasingly popular as real estate values were steadily climbing. For instance, the proportion of interest-only loans within newly issued commercial mortgage-backed securities (CMBS) rose to 88% in 2021, up from 51% in 2013. In a low-interest rate environment, owners would refinance or sell to repay the debt, but this becomes increasingly difficult with higher borrowing costs. Fitch Ratings estimates that 35% of securitized commercial mortgages due between April and December 2023 will be unable to refinance based on current interest rates and property income values. Read More.