Davis Polk co-head of Real Estate Brian Lichter was quoted in Law360 Real Estate Authority discussing defaults of commercial mortgage-backed securities.

Discussing a recent CRED iQ report that says it expects to see a continued rise in maturity defaults, Brian said, “Their outlook sounds right. When you’re talking about floating-rate debt, many floating-rate loans have interest-rate caps that expire prior to loan maturity.”

Brian added that given the now high cost to replace expired rate caps, the situation could put some loans into distress before they reach maturity, exacerbating the overall issue of distressed debt. “I think you’ll see more of that,” he said about loans with expired interest-rate caps hitting distress prior to maturity.

Noting that one hurdle to getting new deals done is that it is difficult for banks to underwrite transactions with so few transactions happening, Brian said, “It’s hard for anyone to resolve any of this until there is a sense of pricing in the market. With very few transactions, it’s hard to get consensus on … what an appropriate price point is. I think you’re going to continue to see [CMBS] loans being transferred to special servicing.”

“CMBS Market ‘Underwater’ Amid Soaring Interest Rates,” Law360 Real Estate Authority (October 5, 2023) (subscription required)

Copy link to share post