We felt it would be helpful to provide a 2023 and 2024 forecast of expiring debt notes. Specifically, with the CMBS  and local and regional banking exposure over the last 24 months, we’ve seen a marked increase in the cost of hedging fees.

Page Content 

• Looking Behind
• Looking Forward
• Overall Outlook

Looking Behind

The majority of loans have been put in place since the beginning of 2021 have been unhedged, and they’ve been floating. Not only have the rates been floating, but also the spreads have been floating. On occasion, as new debt has been placed across CMBS, localized bank, and debt funds, the spread has increased approximately 100 bips since the beginning of 2021. This market spread expansion has hindered the ability of these short term, short duration notes to be able to be reforecasted and refinanced. 

Looking Forward

The amount of expiring debt between 2015 and 2023 will increase 300%. The amount of localized and regional bank debt is approximately $210 billion for 2023 and again another $210 to $220 billion for 2024, with a market increase from around 60 billion in 2015. Additionally, the CMBS expiration’s coming online are significant. They will double between 2022 and 2023 to reach around $130 billion. So what does that mean for investors? It means there will be significant buying opportunities as building operating expenses have increased because of inflation, without an offsetting increase in income, and because the interest rates on these floating loans have increased significantly upwards of 4% to 6%. The debt service coverage ratio is in Q1 and Q2. As those get reported back to the lenders, the CMBS providers, the servicers and the local banks are going to be busted. They are going to have significant dsvr coverage ratio covenant exposure. Which we believe will lead to a Q1, Q2, Q3, influx of new inventory on the market, and price discovery towards the downward side. We believe this will be very optimal for investors who have excess cash available and liquidity to go into the market and place long term to immediate term debt on new assets.

Overall Outlook

Again, the significant upheaval of the debt markets around $1-$2 trillion of debt maturing between 2023 and 2024 will have a market positive effect on those who have excess capital and will have a market negative effect on those who have assets who have recently busted DSVR coverage ratios. This is a great time to invest in distrust assets, and we feel very, very bullish going into 2023.