$273bn of US CMBS at risk of default

More than 60% of loans coming due in the next decade probably won’t qualify for refinancing and at least $50bn of default-related losses are expected, according to Deutsche Bank.

At least two thirds of the $410 billion in US commercial mortgage-backed securities coming due between 2009 and 2018 are at risk of default because they are not likely to qualify for refinancing, according to reports of Deutsche Bank research.

The risk jumps markedly for CMBS loans originated at the height of the real estate bubble in 2007, of which only 20 percent will probably qualify for refinancing, various media reports have stated. Deals at that time were being financed with, in some cases, more than 90 percent debt.

Prices have now come down 25 percent to 30 percent in the US from their debt-fuelled peak, according to the Deutsche Bank report, and declines could hit 50 percent.

Deutsche Bank predicts a gap of roughly $100 billion between available sources of debt and the financing that will be needed by borrowers when loans come due. Lenders today are offering financing at lower loan-to-values and generally with more expensive terms.

A conservative estimate of default-related losses on fixed-rate CMBS loans is placed at $50 billion or 6.5 percent of loans outstanding.