The Status of Maturing Loans in 2024

Article originally posted on Globe St. on March 26, 2024

The view from the ground on office debt coming due in 2024 is something over $600 billion, according to MSCI. And that’s not counting $270 billion from 2023 that weren’t refinanced or, as the firm noted, apparently neither explicitly refinanced or sold

“Given that property owners are not inclined to take a loss on the sale of an asset, nor refinance in a high interest rate environment, we have deemed these loans, ‘likely extensions’, indicating we believe that these loans have been granted some short-term extension to their maturity date,” they wrote. “Taken together, we estimate that as much as $870b of mortgages tied to assets in our database could come due in 2024.”

It’s a staggering amount, with 2021 originations being the largest vintage. “Given these loans were originated at record high prices and record low interest rates, we anticipate that many of these borrowers will look to their lenders in the hopes of extending the maturity of their loans,” MSCI wrote. “Not every lender will be willing or able to extend however, making this vintage of loans a prime target for those looking for opportunities in the dislocation.”

The next largest segment was from 2019. That wouldn’t have been at the record lowest interest rates, but still significantly low as to find the current ones to offer sticker shock.

Office is a significant portion — more than 20% — of the properties backing the loan values. “Owners of these assets may have a more difficult time qualifying for a loan extension than the owners of the other asset classes,” they wrote. “With much of the pain in the office sector being fundamental rather than financial, lenders who feel they will be unable to recoup their investment at any point in the future may want to cut their losses now.”

Interestingly, a look at the data shows that the largest percentage of the loans are against multifamily properties. They haven’t shared the degree of stigma, but the Federal Reserve has explicitly mentioned multifamily and office sectors where prices continued to decline.

Drivers of the loans coming due were investor-driven vehicles like CMBS and CLO. “CMBS lenders have the single largest exposure to loans maturing in the year, accounting for nearly 30% of the outstanding balance,” MSCI wrote. “In later periods of the maturity schedule — particularly between 2025 and 2027 — the share of maturing loans is dominated by banks. Bank lenders are behind at least 45% of the loans scheduled to mature in each of these three years.”