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Investors are unlikely to be repaid on the majority of European loans due this month that form the basis of the type of commercial mortgage-backed securities deals which thrived until the 2007-08 subprime crisis.
A total of €2.5bn worth of commercial mortgage loans that were packaged together as securities and then sold on to investors are due to mature in July – the biggest month to date for maturing loans connected to European CMBSs.
However, with banks and property companies increasingly reluctant to refinance property loans, Fitch estimates that only about a quarter of the loans that mature in July are likely to be able to pay out to investors on time. Many investors will be forced to accept extended loan maturities.
It has become increasingly difficult to refinance property loans, including those contained in CMBS vehicles, as banks have looked to shrink in the face of the tough economic and regulatory environment.
Last week Commerzbank, the largest commercial real estate lender in Germany, said it would pull out of commercial property lending, as well as shipping finance, as it sought to focus on more profitable activities.
Many of the loans due in July are connected to bonds that were crafted at the height of the securitisation boom in 2004-07 that are due to mature in the next couple of years.
Charlotte Eady, a director at Fitch, said that five of the loans maturing in July were in two transactions that need to repay their bond investors in 2014, reducing the possibility of extending them through to legal final maturity.
If the loans fail to pay off, this could force the companies servicing the loan portfolio to sell some of the properties in unfavourable conditions.
It also raises the prospect of the overall bond structures being forced into a restructuring process, which could have negative consequences for bondholders.
In April bondholders agreed a deal to recover some of the debt owed to them in the first case of a CMBS bond going into overall default. Senior bondholders accepted an offer from TPG and Patron that paved the way for the groups take over Uni-Invest, a Dutch property company with a range of assets.
Peter Hansell, head of real estate at Cairn Capital, said the fact that a high proportion of property loans behind CMBS deals were continuing to fail to pay at maturity would put more pressure on the special service vehicles managing the portfolios.
But he said there was still a significant “tail period” of two to three years between the loans hitting maturity and the bonds maturing. “So you will continue to see workouts and CMBS deals push towards restructuring.”
With banks and property groups unable or unwilling to buy up the loans, private equity players such as Blackstone, Cerberus and Lone Star have in some cases bought distressed debt at sizeable discounts to face value.