SFA Research Corner – To Extinguish Post-Pandemic Fires We Needed Water, We Got Gasoline
Provided by Structured Finance Association
This issue of Research Corner focuses on the $5.6 trillion commercial real estate (CRE) market. Already wrestling with declining values and decreasing demand for retail and office properties, the sector now faces refinancing challenges —an estimated $2.5 trillion in loans will mature before 2027—while sources of funding have pulled back. Banks, the largest CRE lender by far, tightened lending standards in 2022 and may face liquidity issues in 2023. Other lenders have also pulled back. Issuance in the private-label CMBS market, which contributes 14% of CRE funding, has been anemic in Q1 2023, showing a 73% drop from Q1 2022 with just $22 billion of new issue private label and agency CMBS. At the root of the problem is the unfavorable financing conditions brought on by higher interest rates and wider spreads impacting access to credit for all property types. Depending on the severity of near-term economic headwinds, the coming waves of refinances in CRE will bring significant changes to the sector.