In the latest episode of The REIT Report: NAREIT's Weekly Podcast, Manus Clancy, senior managing director at Trepp, discussed the latest developments in the commercial mortgage market.
Clancy offered his thoughts on the so-called wall of maturities, which refers to the high volume of loans issued in 2006 and 2007 that are now coming due. He noted that whereas market watchers once expected between 25 and 50 percent of these loans would end up defaulting, the ultimate default rate should be less than 20 percent.
“We’ve outperformed to the upside in terms of things turning out better than people would have thought,” Clancy said.
However, refinancing loans in some sectors is proving to be challenging, according to Clancy. These include retail and suburban office properties.
Trepp’s data indicate that the overall delinquency rate on commercial mortgages has turned upwards in the last 12 months. Clancy said that is to be expected as these loans approach their dates of maturity.
“We always knew that there would be some loans that would muddle through, some that would pay off in full, even early, and some that would be left behind and struggle to refinance,” Clancy said. He reiterated that the increase in delinquencies represented “a fraction” of what was once expected.
“The fact that it has only moved up a point is moderately bullish for the market and certainly something that investors who own pieces of these mortgages can cheer about,” Clancy remarked.
In terms of stories to watch in the coming months, Clancy cited interest rates, which still remain favorable for borrowers.