Unpacking the $2 trillion wall of maturities

November 6, 2024

Kirloes Gerges

Managing Director, Portfolio Management, Principal Real Estate Debt

Troy Kort, CFA

Portfolio Manager, Principal Real Estate Investors

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AT-A-GLANCE

Approximately $2 trillion in commercial mortgages will mature over the next three years; borrowers will be required to refinance or recapitalize those assets, driving huge demand for capital.
The “wall of maturities” is the result of huge transaction volumes in commercial real estate in 2021 and 2022.
The makeup of these maturities is reflective of evolution in the CRE market overall—namely, the decline of office, rise of multifamily, and robustness in the industrial sector.
The combination of a large share of coming maturities and a robust outlook for multifamily and industrial presents strong opportunities for investment in those sectors.

We believe it’s a good time for credit. One reason is a favorable imbalance between demand for capital (which is high) and supply (which is constrained, as traditional lenders have continued to pull out of the commercial real estate market). As we wrote recently in Why it’s (still) a good time to invest in private real estate credit, “This combination has created a lender’s market, with favorable conditions including rising spreads and total yields.”

Considering the broad-based opportunity in real estate credit today, the wall of maturities is a significant part of the demand side of the story. There are approximately $2 trillion in loans maturing over the next three years. Borrowers will be required to refinance/recapitalize these assets—driving huge demand for capital in an environment marked by waning supply.

Where did this wall of maturities come from? Which sectors are most prevalent? Where will opportunities emerge? We answer those questions here.

EXHIBIT 1: $2 trillion in commercial mortgages will mature over the next three years

Bar graph showing $2 trillion of commercial mortgages maturing over the next 3 years

Source: Mortgage Bankers Association, 31 December 2023. CMBS - Commercial mortgage-backed securities GSE – Government-Sponsored Enterprise

Opportunities in private real estate credit

The combination of a large share of coming maturities and a robust outlook for multifamily and industrial presents strong opportunities for investment in those sectors. Indeed, multifamily and industrial make up a significant share of Principal Real Estate Debt team’s pipeline, along with some more niche property types including student housing, build to rent (BTR), and self-storage.

With the wall of maturities, over the next several years there will be hundreds of billions of dollars in deals in these sectors, and strong opportunities to deploy capital as supply remains constrained.

Principal Real Estate is a full-service debt manager with expertise across lending managed in-house. With our vertically integrated platform, we’re able to both close loans in house and service them. We invest across the risk spectrum, the capital stack, and varying deal sizes, giving us a strong vision of the market and enabling broad relationships. We put our 60 years’ of private debt investment experience to work for our clients and they’re able to benefit from our broad four quadrant real estate experience.

Real estate

Experience includes investment management activities of predecessor firms beginning with the investment department of Principal Life Insurance Company.

Disclosure

Risk Considerations
Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Potential investors should be aware of the risks inherent to owning and investing in real estate, including value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate. Private credit involves an investment in non-publicly traded securities which are subject to illiquidity risk. Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss. Investments in Private Credit may also be subject to real estate related risks, which include new regulatory or legislative developments, the attractiveness and location of properties, the financial condition of tenants, potential liability under environmental and other laws, as well as natural disasters and other factors beyond a manager’s control. Fixed-income investment options that invest in mortgage securities, such as commercial mortgage-backed securities, are subject to increased risk due to real estate exposure. Commercial Mortgage Backed Securities carry greater risk compared to other securities in times of market stress.

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Unpacking the $2 trillion wall of maturities

AT-A-GLANCE

Opportunities in private real estate credit

Footnotes