Landlords of commercial properties in Europe are struggling to repay mortgages as banks pull back from refinancing the loans, according to Moody’s Investors Service.
Seventy-nine percent of the loans packaged into commercial mortgage-backed securities rated by Moody’s that came due in the first quarter weren’t repaid on time, Frankfurt-based analyst Oliver Moldenhauer wrote in a report. The non-payment rate more than doubled from 35 percent in 2009 and reflects “the current weak state of the lending market,” Moldenhauer wrote.
The economic slowdown is hurting landlords of properties from office blocks to car parks and shopping malls across Europe. A total of 38 billion euros ($47 billion) of commercial real estate loans come due this year and next, Moody’s said.
“As banks need to deleverage due to regulatory requirements, commercial real estate financing will remain constrained,” Moldenhauer wrote. “Most loans will not be repaid.”
In the U.K., banks and other creditors cut commercial real estate lending by 6.8 percent to 212.3 billion pounds ($329 billion) last year as they bolstered balance sheets and recapitalized to meet stricter regulations, according to an estimate published May 18 by De Montfort University in Leicester, England.
“Not only can underwater loans not be refinanced, borrowers also face difficulties refinancing moderately leveraged loans that are simply too large in the current lending market,” said Christian Aufsatz, an analyst at Barclays Plc in London. “For CMBS, the situation will become worse.”
Real estate with mortgages that match or exceed the value of the property -- a so-called loan-to-value ratio of 100 percent or higher -- suffered defaults in “nearly all” cases in the first quarter, Moody’s said. About a third of borrowers with LTV ratios of up to 80 percent didn’t pay up on time, according to the report.
Most of the loans that were repaid were for less than 25 million euros, while just one of the 15 mortgages worth 75 million euros or more was paid on time, Moldenhauer wrote.