Shafiq Hirani breaks down which loans are in trouble: interest-only loans are the most vulnerable, with 80% of borrowers needing to bring cash. Office loans are hit hardest at 63% needing equity contributions. The crisis is concentrated in New York and San Jose, not spread across all markets or property types.
Interest-only loans are in the worst position. They account for $8.2 billion in the sample but generate only $6.8 billion in estimated refinance proceeds. 80% of interest-only borrowers need to bring cash in, and 61% need a 20% or greater equity contribution. Compare that to amortizing loans, the kind most small building owners carry. Only 23% need any cash in at all, And just 9% need a significant paydown. If you have been making principal payments on your loan, you are in a fundamentally different position. Second, property type. Office is the largest exposure at $4.8 billion, with 63% of balances requiring equity and 56% needing 20% or more. Mixed-use is even worse at 80%, but multifamily, retail, and lodging are healthier overall. Apartments are not driving this crisis. Third, geography. New York alone accounts for a $627 million refinance shortfall and nearly 40% of loans needing major cash infusions. San Jose is another hotspot. Most markets are not seeing this level of pressure. The bottom line, this is not a broad-based refinancing crisis. It is concentrated in interest-only office and mixed-use loans, in specific metros. If you own a stabilized apartment building with an amortizing loan, you are not the borrower these reports are warning about. A separate report from Marcus& Millichap paints a picture that apartment owners should find encouraging.
