Deutsche Bank says 2/3 of loans maturing from now through 2018 cannot be refinanced

Deutsche Bank says 2/3 of loans maturing from now through 2018 cannot be refinanced. On a national scale, a recent Deutsche Bank report estimated that at least two-thirds of CMBS loans maturing between now and 2018 will unlikely qualify for refinancing at maturity without significant equity infusions from borrowers. We believe this estimate reasonably applies to the other CRE loans (i.e. non-CMBS loans).

IMF says $566 billion in CRE debt comes due in 2010 and 2011 in the U.S. Again at a national level, the IMF report cited earlier said that in the United States, $566 billion in CRE debt comes due this year and next. By the end of 2012, Deutsche Bank says the total CRE debt due will exceed $1 trillion! As a point of reference, note that about 25% of the CRE loans are CMBS loans. The rest are from banks, insurance companies and other lenders.

Fitch gives shocking numbers. A few days ago, a Fitch report said that despite the declaration by the National Bureau of Economic Research that the Great Recession is over . . .

• 10 states have CMBS loan delinquency rates in excess of 10% ranging up to a staggering 25% delinquency for Nevada.
• In September, hotel delinquencies in CMBS exceeded 21%.

The real key to a turnaround is employment.

While the hospitality industry fundamentals seem to be bouncing along a “bottom” with slowly improving fundamentals, we don’t see significant improvement until the employment picture in the U.S. really picks up.

Although some economic indicators have been encouraging lately, as Fitch Ratings Managing Director Mary MacNeill said recently, “National employment underpins demand for every property type and a jobless recovery for the U.S. economy foretells continued challenges ahead for commercial real estate.”

If employment is the key, things do not look good.

According to New York Times reporter, Catherine Rampell, in an article published October 8:

For the 14.8 million people out of work, the picture is not brightening. The average duration of unemployment continues to hover at record highs. In September, the typical unemployed worker had been searching for a job for 33.3 weeks.

The most optimistic projections we have seen suggest employment begins to turn around in mid to late 2011 . Perhaps it takes a few quarters for that beginning to begin to affect consumer and business mindsets. Maybe it takes a year or two. It is hard to envision a significant improvement in employment until 2012 or 2013 at the earliest.

Then consider the daunting shadow supply of defaulting and to-be-foreclosed real estate as lenders finally come to grips with severely over-leveraged CRE, including hotels. Most lenders cannot be long-term owners of distressed real estate, so they will be forced to sell the distressed real estate at some point, particularly as they see little benefit in longer holding periods with slow property value increases, and are forced to deal with new regulations and higher capital requirements.   From Jim Butler’s Hotel Blog at http://hotellaw.jmbm.com/2010/10/distress_continues.html