More capital is needed for commercial property borrowers as $1 trillion in debt matures over the next three years, according to Michael Boxer of investment firm Ramius LLC.
Refinancing won’t be possible for 77 percent of loans arranged during the height of the property boom, said Boxer, a Ramius partner, in an interview with Bloomberg Television’s Scarlet Fu on “Money Moves.” That will leave a “very big gap,” that needs to be filled, said Boxer, head of real-estate related investments at the New York-based firm, which manages $10.3 billion including more than $2 billion of property assets.
Even with investor confidence in commercial-property debt at the highest since May, real estate values have declined about 42 percent since 2007, making it harder to refinance loans. Lenders that have “kicked the can down the road” for the past few years are more prepared to accept losses and sell loans at a loss as business improves in other banking areas, said Boxer.
High-quality commercial real estate will yield between 9 percent and 11 percent, Boxer said, compared with yields on 10-year U.S. Treasuries of about 2 percent.
Issuance of commercial mortgage bonds that bundle loans tied to shopping centers, skyscrapers and hotels, is forecast by banks to rise to $45 billion this year from $28 billion in 2011. That’s down from a record $232.5 billion in 2007 when credit markets froze, adding to refinancing difficulties.
“The CMBS market has pulled way back,” said Boxer. “Those buyers are so burned, they were washed out or very skittish.”