No Stone Unturned: Refinancing 2012’s Loan Maturities

Refinancing activity in 2012 is making a comeback, along with the environmental due diligence conducted to support it—not surprising, considering the $362 billion in commercial real estate loans scheduled to mature this year on top of the $346 billion that matured last year. Trepp, LLC estimates that 63 percent of these loans are underwater, meaning they have principal balances greater than the value of their collateral. By comparison, 34 percent of the $326 billion of maturities in 2010 were underwater before reaching their maturity dates, and only 20 percent of 2009’s $321 billion of maturities. The 40 percent decline in property values since the market’s high in 2007 has caused loan-to-value ratios to soar. As the volume of commercial property loans needing refinancing climbs, the battle for available capital is intense. Due to stresses in the commercial real estate market, lenders have become more conservative in their underwriting standards than they were when today’s loan maturities were first originated back in 2007. The purpose of this Technical Brief is to highlight some of the environmental challenges that are coming to the surface as lenders scrutinize the collateral used for loans originated in the market’s heyday through the lens of today’s environmental policies.

Based on recent outreach by EDR Insight to both commercial real estate lenders and the environmental due diligence professionals who support them, the most common problems arising on refis are:

  • The environmental report conducted at origination cannot be found or is of poor quality.
  • Recommendations made by environmental consultant at origination were never followed.
  • Property neglect or deferred maintenance over the course of the loan created new environmental conditions that need to be addressed.
  • Prior due diligence does not meet today’s more stringent environmental standards.

To read more about these four problems and the scope of work for refis, click here.