{"id":165888,"date":"2024-02-02T15:03:00","date_gmt":"2024-02-02T22:03:00","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=165888"},"modified":"2024-02-19T08:06:02","modified_gmt":"2024-02-19T15:06:02","slug":"2-trillion-in-commercial-debt-is-set-to-come-due","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2-trillion-in-commercial-debt-is-set-to-come-due","title":{"rendered":"$2 Trillion in Commercial Debt is Coming Due\u2014What Does That Mean for the Industry?"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC3156606577\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/commercial-real-estate-fundamentals\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Commercial real estate<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;has had a few rough years, and it seems like things won\u2019t be getting better anytime soon. The sector is set for a potential rise in defaults, as higher interest rates have increased the costs of refinancing.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">And with $2.8 trillion due between now and 2028, more landlords could be feeling the crunch. According to&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.trepp.com\/trepptalk\/cre-mortgage-maturities-debt-oustanding-2.81-trillion-coming-due-by-2028\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">data firm Trepp<\/span><\/a><span data-preserver-spaces=\"true\">, commercial debt maturities are expected to balloon in the next few years. While many loans were extended or refinanced, the clock is slowly ticking for the CRE sector as those extensions are coming due.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Worst Commercial Slump in the Last 50 Years<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">The CRE market has been struggling to regain its footing since the start of the pandemic, especially in office space. When the pandemic hit, many office spaces emptied, forcing landlords to make deals to delay payments until things recovered.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"972\" height=\"321\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image1.jpeg\" alt=\"Commercial Mortgage Maturities by Lender Type (2023-2028) - Trepp\" class=\"wp-image-165891\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image1.jpeg 972w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image1-300x99.jpeg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image1-768x254.jpeg 768w\" sizes=\"auto, (max-width: 972px) 100vw, 972px\" \/><figcaption class=\"wp-element-caption\"><em>Commercial Mortgage Maturities by Lender Type (2023-2028) &#8211; <a href=\"https:\/\/www.trepp.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Trepp<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<p><span data-preserver-spaces=\"true\">Unfortunately for those invested in the office arena,&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/the-real-world-impacts-on-remote-work-and-what-it-did-for-investors\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">remote and hybrid working<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;is now becoming the norm, with many businesses downsizing their office space or even becoming fully remote.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Now that the CRE debt is coming due, landlords are starting to squirm. Because of how commercial mortgages are structured, when the debt matures, the principal must be paid off in full or refinanced.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This has led to one of the&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.imf.org\/en\/Blogs\/Articles\/2024\/01\/17\/us-commercial-real-estate-remains-a-risk-despite-investor-hopes-for-soft-landing\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">steepest commercial real estate price declines in the last 50 years<\/span><\/a><span data-preserver-spaces=\"true\">, a group of economists at the International Monetary Fund (IMF) found. This can largely be attributed to higher interest rates, steep monetary policy tightening, and stricter bank lending standards, according to the IMF.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"832\" height=\"589\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image2.jpeg\" alt=\"Commercial Prices During Monetary Tightening Cycles - International Monetary Fund\" class=\"wp-image-165892\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image2.jpeg 832w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image2-300x212.jpeg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image2-768x544.jpeg 768w\" sizes=\"auto, (max-width: 832px) 100vw, 832px\" \/><figcaption class=\"wp-element-caption\">Commercial Prices During Monetary Tightening Cycles &#8211; <a href=\"https:\/\/www.imf.org\/en\/Home\" target=\"_blank\" rel=\"noreferrer noopener\">International Monetary Fund<\/a><\/figcaption><\/figure>\n\n\n\n<p><span data-preserver-spaces=\"true\">While the office sector has been the hardest hit, the entire market has felt the sting over the last few years thanks to a souring CRE market. Vacancy rates in&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/finding-multifamily-properties\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">multifamily homes<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;have increased, and rent growth is expected to decline in the coming year, according to&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.cbre.com\/insights\/books\/us-real-estate-market-outlook-2024\/multifamily\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">CBRE<\/span><\/a><span data-preserver-spaces=\"true\">. Industrial spaces are also showing signs of weakening.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The only potential bright spot in CRE is the&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/retail-investing-is-making-its-return\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">retail sector<\/span><\/a><span data-preserver-spaces=\"true\">, as robust consumer spending and suburban migration has driven demand for outdoor shopping centers.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Interest Rates Aren\u2019t Going Down Fast Enough&nbsp;<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">While interest rates have gone down a bit, it might not be enough. According to&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.wsj.com\/real-estate\/commercial\/the-bill-is-coming-due-on-a-record-amount-of-commercial-real-estate-debt-451ec8cb\" target=\"_blank\" rel=\"noopener\"><em><span data-preserver-spaces=\"true\">The Wall Street Journal<\/span><\/em><\/a><span data-preserver-spaces=\"true\">, many borrowers are refinancing at rates higher than when they first took out loans.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The Federal Reserve is under pressure to cut rates, with&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.morningstar.com\/markets\/when-will-fed-start-cutting-interest-rates\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">some economists<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;expecting a cut by the end of the year to 3.75%-4% and continued cuts by the first half of 2026 until the rate hits 1.75%-2%. However, that might not be fast enough for the CRE sector.&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.fitchratings.com\/research\/structured-finance\/us-commercial-real-estate-refinance-challenges-propel-cmbs-delinquencies-refinanceability-to-decline-in-2024-amid-higher-rates-macroeconomic-headwinds-04-01-2024#:~:text=Fitch%20Ratings%20projects%20its%20U.S.,2.25%25%20as%20of%20November%202023.\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Fitch Ratings<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;expects delinquency rates in commercial real estate to increase to 4.5% this year, while regulators are worried about the spillover effects.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In its 2023 annual report, the&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/home.treasury.gov\/system\/files\/261\/FSOC2023AnnualReport.pdf\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Financial Stability Oversight Council<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;(FSOC) cited exposure to commercial real estate as a concern for financial institutions and said that they need to better understand the risk. Nearly 50% of CRE&#8217;s outstanding debt is held by banks.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">\u201cAs losses from a CRE loan portfolio accumulate, they can spill over into the broader financial system. Sales of financially distressed properties can\u2026 lead to a broader downward CRE valuation spiral,\u201d FSOC said in its report.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">The Bottom Line for Real Estate Investors<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Commercial real estate investors should buckle in and get ready for a bumpy ride over the next few years. That said, although the CRE space is under pressure, there\u2019s still some time for landlords to negotiate. Still, with CRE sales also under pressure, that\u2019s devalued properties, making it hard for lenders and borrowers to agree on how much the property should be worth.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">With banks becoming more risk averse around CRE and under more regulatory scrutiny, that could open opportunities for non-bank lenders such as&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/find-private-money-lenders\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">private credit&nbsp;<\/span><\/a><span data-preserver-spaces=\"true\">to step in. And for some savvy investors, the stress in the CRE market could provide opportunities.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In other words, there could be opportunities for investors to find distressed properties for a great value, provided they\u2019re prepared to weather some uncertainty in the next few years. However, uncovering these bargains will require a lot of due diligence to avoid falling for value traps.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Real estate investors should make sure to heavily&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-investment-analysis\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">scrutinize<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;every opportunity that presents itself. While there will certainly be some opportunities to revitalize properties, not all cheap properties will be worth the long-term price.<\/span><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_12f31f62069bdd63c9f466a22edcefd2\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_aaa406407faa1b936dfb2c73b321550d\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<div id=button-custom-event-block_767a5736d3379f075f7c26aedbb59595 class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\" x-on:click=\"window.analytics.track(&#039;Blog Block | B2C Marketplace Lender Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/2-trillion-in-commercial-debt-is-set-to-come-due&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/signup\" x-on:click=\"window.analytics.track(&#039;Blog Block | Acquisition | Free Membership Signup&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/2-trillion-in-commercial-debt-is-set-to-come-due&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Over the next four years, commercial debt bills will total a whopping $2.8 trillion&#8212;many of which are balloon payments. It&#8217;s led to the steepest drop in commercial asset valuations in recent history and created tremendous anxiety amongst investors. Where does the market go from here?<\/p>\n","protected":false},"author":613681,"featured_media":165894,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5527,7119,8],"tags":[],"class_list":["post-165888","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-commercial-real-estate-investing","category-biggerpockets-daily","category-real-estate-trends"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/165888","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613681"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=165888"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/165888\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/165894"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=165888"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=165888"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=165888"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}