ANDREW ZINN
Managing Director, CRE Southern California
(949) 475-6326 | [email protected]
first.bank/CommercialRealEstateLoans
Like other banking professionals, I’ve been fielding numerous calls from Commercial Real Estate (CRE) clients on both the direction of interest rates as well as strategies for pending maturities of commercial loans. While I make every effort to stay out of the interest rate game, I do offer our clients cold facts about the new rate reality we are facing.
According to the Mortgage Bankers Association (MBA), commercial and multifamily mortgage debt outstanding increased by $172 billion to almost $4.8 trillion in the fourth quarter of 2024, up 3.7% compared to last year1. That’s good news for CRE investors as lenders are making loans. Given that CRE loans are typically shorter in duration than residential loans, one must consider pending maturities.
According to data firm Trepp, commercial-debt maturities are expected to continue rising with more than $2.2 trillion maturing from 2024 to the end of 2027. That is over 45% of the total inventory of commercial mortgage debt and isn’t even close to the real 800-pound gorilla.
The St. Louis Federal Reserve reports public debt currently stands at $36.2 trillion2. Removing current politics, this represents an explosion of federal debt since the pandemic, where debt was $23.3 trillion (55% increase). This increased issuance has important implications for debt management decisions as the federal government is projected to spend nearly $1 trillion on debt service in 2025.
Much of this increase in debt was funded with longer duration bonds as Treasury benefited from low rates triggered by the pandemic and an inverted yield curve where term premium was either negative or nil until late in 2023. Treasury currently reports the weighted average maturity of federal debt at 70.8 months as of October 31, 2024. This exceeds the average of 61 months from 1980 to the present. Should the spread between longterm and short-term treasuries normalize, Treasury will have more incentive to shorten the duration of public debt issuance to lower their borrowing costs.
Holding all other external forces constant, such as economic growth, federal spending, monetary policy, and global economic conditions, CRE investors will be competing with a mountain of maturing commercial and public debt over the next three years. Given current Federal Open Market Committee (FOMC) guidance is to hold the Federal Funds Rate at a target range of 4.25%- 4.50%3 and is electing to reduce its balance sheet runoff in Treasurys from $25B to $5B with two projected rate cuts for the year, the impact on rates from my perspective remains you may not want to “wait and see.”
Given that CRE term loans are generally priced from prevailing 3 to 10-year treasury yields plus a margin, commercial borrowers are likely to face headwinds on rates as bond investors weigh the premium offered for holding long-term assets. Higher for longer may end up being the new reality for CRE debt even with reductions in rate on the short end of the yield curve. As we navigate the evolving landscape of CRE, it’s important to consider the advantages and disadvantages of securing financing at today’s rates or waiting to see what future rates may look like. The impact of this decision could be vital to the future of your organization.
Contact First Bank’s knowledgeable CRE team so that we may strategize a plan to position your business for economic growth and sustained success.
first.bank/CommercialRealEstateLoans
Andrew Zinn possesses 25 years of lending experience in commercial real estate with the ability to structure and close loans between $2 million and $20 million. Zinn holds a B.A. Degree in Economics from UC Berkeley and is an honors graduate from Pacific Coast Banking School.
Sources: 1Taylor, Falon. “Commercial and Multifamily Mortgage Debt Outstanding Increased $47.7 Billion in Third Quarter of 2024,” Dec. 19, 2024. 2 Federal Reserve Bank of St. Louis, “Federal Debt: Total Public Debt”, U.S. Department of the Treasury. Fiscal Service via FRED®, March 4, 2025. 3Grant, Peter. “The Bill Is Coming Due on a Record Amount of Commercial Real Estate Debt,” Jan. 16, 2024.
