The approaching tidal wave: Maturity defaults in CRE loans

 Bloomberg has reported this week that "almost $165 billion in U.S. commercial real estate loans will mature this year and need to be sold or refinanced as rents and occupancies fall, according to First American CoreLogic.  The U.S. South has the most maturing loans with 60,893 mortgages valued at $96 billion coming due on shops, offices, hotels, apartment buildings and land . . . .The West is second with 20,549 mortgages maturing for a value of $35 billion.  Commercial property owners are struggling to pay debt as the recession reduces demand and forces landlords to cut rent. . . . Properties worth more than $108 billion were in default, foreclosure or bankruptcy as of July 8, according to data firm Real Capital Analytics Inc.  .  .  .  U.S. commercial property prices fell 7.6 percent in May from a month earlier, bringing the total decline to 35 percent since the market's peak, Moody's Investors Service said last week.  .  .  . More than 5,000 commercial properties in the 10 biggest U.S. metropolitan areas got at least one default notice in March, marking the first time that's happened in First American records going back to January 2003. "This looks like an approaching tsunami to me for banks, special servicers and other CRE lenders. Now we're seeing lenders generally extending their loans when possible to avoid having to sell properties at current low prices and into a market where potential buyers are having difficulty arranging new financing.   (The smart lenders are using this as an opportunity to review their loan documents and fix anything that could block or hamper later enforcement through foreclosure.) These extensions are, essentially,  bets that the economy will recover soon enough that these lenders won't have to foreclose or do larger scale workouts.  Extensions are also protective measures for each individual institution --  by postponing any writedown, the lender preserves its own capital and protects its short term solvency.  And it is possible that the massive governmental stimulus will reinflate the economy and the demand for CRE (though I am skeptical about this).But I can't figure out where the needed replacement financing is going to come from, especially since the CMBS market appears to be dead, leaving a huge gap (perhaps 40%) in the financing available for CRE.  (Few banks have an appetite for more real estate loans.  Haven't heard a lot about life insurance companies wanting more  CRE loans either.  One of my partners has done one of the two covered bond deals completed to date, and thinks that structure is unlikely to replace the missing CMBS financing.)   Do any of you have any ideas about what will replace this missing financing?