Magazine article Mortgage Banking

Falling Values Raise Future Refinancing Obstacles

Magazine article Mortgage Banking

Falling Values Raise Future Refinancing Obstacles

Article excerpt

Borrowers could face major obstacles in refinancing $2.2 trillion of highly leveraged properties in the next few years, said Real Capital Analytics Inc. (RCA), New York.

Moody's/REAL Commercial Property Price Index said $2.2 trillion of properties acquired or refinanced in early 2004 lost value since the transaction, and many of these properties, typically leveraged 70 percent to 80 percent, will face significant refinancing hurdles even if prices held firm.

"Few lenders now are willing to advance more than 50 percent to 60 percent of value," said Robert White, president of RCA. "Loans originated in 2007, the market peak, are seeing the highest levels of default, although loans dating from 2004 to 2006 are also problematic and are likely to remain so as they reach maturity over the next few years." White also said $1.3 trillion of equity in properties is "at great risk, if not already wiped out, since properties acquired or refinanced in 2006 to 2008 have seen price declines of 25 percent or more."

RCA's analysis includes only office, industrial, apartment and retail properties of significant size. "Hotels, land, other property types and smaller properties would add billions more to the total," White said. …

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