Maturity defaults could increase due to higher interest rates, but they will likely be moderate, panelists said here at the MBA Commercial/Multifamily Finance Servicing and Technology Conference.
PNC Real Estate Senior Vice President Andrea Helm said maturity defaults could increase over the next 12 to 18 months, but noted they will likely be moderate and very property-specific.
“We had a runup of payoffs last summer when interest rates first popped, mostly by opportunists who wanted to get their loans paid off,” said Michael Heagerty, CCMS, Principal and Chief Financial Officer with Gantry, San Francisco. “That’s largely dissipated and it’s been pretty quiet. If rates drop, there could be a flood of deals that are currently on the sidelines that will come in, but for the time being, we will have to take it on a case-by-case basis.”
Heagerty said numerous office buildings with maturing loans in downtown San Francisco could need attention. “There will be some note sales as lenders try to move those off their books,” he said. “In selective cases there will be some movement, but it won’t be like 2008. [Servicers] will be very selective and there will be creativity that goes into making those happen.”
Michael Tanner, Principal and Executive Vice President of Pacific Southwest Realty Services, Los Angeles, agreed that the current situation does not resemble the 2008 downturn. “Part of the issue on the originations side is there is not enough product to put loans on this year,” he said. “The buy and sell side has problems with rates going up; there is not a lot of trading going on. But there is capital available. Transactions can happen. Loan pricing has been very stable over the last couple of few months. It’s a predictable market, so we can transact, there is just not a lot of fodder.”
Leslie Hayton, CCMS, Head of CMBS Asset Management with Wells Fargo Bank, San Francisco, said the industry learned its lesson from the last downturn. “The discipline is there,” she said.