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Life After Debt: Coming to Grips with the Funding Gap
It is no secret that much of the commercial real estate market is overleveraged.
As a result of the aggressive lending environment between 2005 and 2008, there is a large body of commercial properties that will not qualify for mortgages sufficient to pay off the existing debt. It is virtually certain that the volume of overlevered real estate will create an enormous amount of distress and turnover in the commercial property market over the next few years. In this paper, we estimate how much capital will be needed to fill the funding gap, or the difference between the size of existing mortgages and the proceeds those properties will qualify for in a less-heated environment.
