DEBT OUTSTANDING

Although some of this tremendous outstanding debt will be successfully refinanced, the reality is that refinancing will no longer generate excess proceeds for the owner. Many will face selling the property or defaulting on their loan; therefore flooding the market with distressed assets.

The nationwide level of commercial (including multifamily) debt now totals over $3.5 trillion (Q4 2008)- an amount even more staggering than consumer credit card debt ($2.2 trillion.)

In response to the need for refinancing, bank lending to commercial real estate rose to $1.7 trillion, up $215 billion - 13.8% percent - during 2008. However, their loan expansions are insufficient to make up for the complete vaporization of CMBS lending.

More specifically, multifamily mortgage debt now amounts to $875 billion. It has increased $16.3 billion - or 1.9 percent - from the first quarter of 2008.

Most 7-10 year debt maturing in 2009 will leave borrowers and investors disappointed. Loans originations from that vintage had high cap rates, low loan values, high interest coverage ratio and 7-10 years of cash flow growth.  REITs alone have approximately $17 billion of debt maturing in 2009, $20 billion in 2010, and more than $30 billion in 2011.


                            Quarterly Percentage Changes in                           Multifamily Mortgage Debt 1988-2008

                                                          Source: Missions Residential, LLC (Sept 2008)