Anticipatiing the Debt Maturity Onslaught

“Between 2018 and 2022, there was a significant amount of floating rate loans funded with 3- to 5-year loan terms based on cap rates being in the 4% to 5% range,” said Ben Kadish, president and founder, Maverick Commercial Mortgage. “Many of those loans were priced at Libor/SOFR plus 300 basis points.”

In the early years of those loans, he said, the general calculation was .10% plus 3.0% = 3.10%, with a likely floor of 3.75-4%. But today? Because of ongoing EFFR increases, “the interest rate has more than doubled since those loans were first originated,” Kadish said. “Lenders were underwriting with a 1.20 debt coverage ratio. Under today’s interest rates, unless the net cash flow of the properties has doubled, the current loan underwriting will not provide loan amounts large enough to refinance the old loan amounts.”

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