Securitization is likely to absorb the $347 billion of commercial mortgages set to mature in the next three years.
Wells Fargo expects $105 billion of the $130 billion set to mature in 2015 alone to be securitized.
This is a much brighter outlook than the past, when there were concerns that refinancing would be a struggle because of the sheer volume of loans coming due all at once.
JP Morgan for example believes that 80% of the loans maturing in 2015 will be refinanced; in 2013 the bank forecasted that only 74% of those loans would find funding.
There is a larger number of CMBS loan origination programs, more than 40, according to Moody’s Investors Service. Underwriting standards have also loosened, making it easier to originate new loans on terms that are within reach of borrowers who originally obtained financing before the credit crisis.
“Even though many of these loans have traditionally low debt yields, they are finding CMBS financing and are ending up back in newly issued deals,” stated Moody’s analysts in a report published today. “In a classic Catch-22 scenario, aggressive CMBS 2.0 loan origination will help ease the refinance tensions of many CMBS 1.0 loans,” the report states.
JP Morgan in its outlook report published this month said that loans structured with loan-to-value (LTV) ratios of less than 70% will be more easily refinanced than high levered loans coming due at the same time. But even mezzanine loans, with LTVs between 70% and 80%, can find funding.
Moody's credits the expanding market for mezzanine debt and equity financing, saying that “the increased availability of both debt and equity capital will provide sponsors of highly levered CMBS 1.0 loans a menu of options with which to recapitalize.”
Refinancing may be more difficult for loans maturing in 2016 and 2017, which were taken out at the height of the real estate boom. JP Morgan expects that these loans will have a 70% and 65% success of refinancing. The lower success rate is largely correlated to the higher debt loads on the underlying properties, which have LTVs of 80% to 100%. Adding to their refinancing risk, according to Moody's, is the fact that many of the loans coming due in 2016 and 2017 pay interest only for their entire terms.