"Troubled Debt Restructuring" Proposed for 17% of Commercial Loans
The Real Estate Roundtable has requested that regulators create a program that would help
financial institutions refinance loans for commercial real estate. This program would be called a
"troubled debt restructuring" (TDR) and would allow for more flexibility between borrowers and
lenders.
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The concern is that many assets are facing liquidity issues as initial financing came with
extremely low rates and favorable terms. Now, as the need for refinancing arises, many
investors are finding it difficult to hit lower loan-to-value ratios and afford higher interest
payments.
The commercial and multifamily real estate market is financed with $5.5 trillion of debt, half of
which is provided by commercial banks.
Approximately $936 billion of this debt (17%) is set to mature in 2023 and 2024.
The group has requested that regulators avoid implementing policies that would require financial
institutions to increase capital and liquidity levels to reflect current market models. They believe
that these policies could further diminish liquidity and create additional downward pressure on
asset values, leading to a deflationary spiral. Instead, they urge regulators to take measures to
maintain sufficient liquidity levels and support positive economic activity.
The Fed is in a tight spot with navigating inflation. While removing liquidity from the economy is
a goal of the fed to pull inflation down, it’s tough to do this without providing economic issues for
the 17% of debt maturing this year and next.