“Frankly, nobody really knows, but they’re going to go up,” Fink said. “There’s no way they can’t go up.”

The default rate on local CMBS loans hovers near its lowest level since 2009 after a prolonged real estate boom that pushed rents, occupancy and property values ​​up. After the financial crisis, the rate climbed to 10.4% in early 2013. From there it started a constant decline, hitting a low of 2.2% last June, according to Trepp. The rate has rebounded around 2-3% since then, hitting 2.4% this month.

Although CMBS loans are only part of the larger commercial mortgage market, they represent a significant piece of the pie, accounting for around 20% of all multi-family and commercial debt outstanding. CMBS lenders make loans to homeowners, then pool a pool of mortgages and sell bonds or commercial mortgage-backed securities against them.

Hotels are currently the most vulnerable CMBS borrowers. Unlike other types of commercial real estate, where landlords and tenants often sign multi-year leases, delaying the impact of a drop in their income, hotels immediately feel the effect as they rent their rooms out overnight stay.

Amid a wave of convention cancellations and a sharp decline in business and leisure travel, many local hotels could face severe cash shortages. Some, including the Park Hyatt and Peninsula hotels in Chicago, have already closed in response to the coronavirus pandemic, and the American Hotel & Lodging Association has asked the federal government for financial help to get through the crisis.

“The impact on our industry is already more severe than anything we’ve seen before, including September 11 and the Great Recession of 2008 combined,” said AHLA President and CEO Chip Rogers, in a press release.

A new city and state map rent thousands of local hotel rooms to quarantine people exposed to coronavirus might soften the blow for hotel owners, but that wouldn’t put them through a prolonged downturn.

A recession – which many economists say has already started – will cause demand to drop for just about all types of real estate, including apartments, offices, retail and industrial space. Still, it can take a while for defaults to increase, as leases expire and mortgages mature. After all, at the height of the global financial crisis, from 2008 to 2009, the CMBS failure rate for the Chicago area only dropped from around 0.2% to around 4%, according to Trepp. It took another three years for the rate to peak at 10.4%.

“Everything we’ve seen is going to start showing up in real estate performance,” Fink said. “But real estate is a lagging asset.”

Some unhappy homeowners will not be able to repay loans that fall due in the next few months. Mortgages at two large local shopping malls, Yorktown Center in Lombard and North Riverside Park Mall in North Riverside, were already in arrears before the coronavirus arrived, which could make it even more difficult for mall owners to refinance.

Still, CMBS loan officers might show some mercy towards borrowers whose loans are due, especially if they believe the economy will rebound after the pandemic subsides.

“If a guy has a loan that matures in the next six months and asks for an extension, there’s a good chance he gets it,” Fink said. “No one better be the one to say, ‘Pay me back on the loan or I’ll take your property.’ You don’t wanna be that guy.