After years of waiting, the tidal wave of maturing CMBS loans is here. Hundreds of billions of dollars in loans made during the last real estate boom are coming to the end of their terms and will need to be refinanced.

“We have just entered the run-up to the peak of the refinance wave,” says Tad Philipp, director of commercial real estate for Moody’s Investors Service.

Between mid-2006 and mid-2007, borrowers took out hundreds of billions of dollars in CMBS loans. Back then, property prices were high and underwriting terms were accommodating. For years, experts worried that when these loans reached the end of their terms they would be impossible to refinance, and many borrowers would be forced to default.

Times have changed. “We don’t expect a lot of loss,” says Phillip. “More than two thirds of the remaining loans will readily refinance.”

Property prices are high again—especially for apartment properties, which are priced much higher than they were at the peak of the financial crisis. “A lot of those loans have already been refinanced,” says John Lo, managing director for real estate services firm JLL.

CMBS lenders and borrowers had a difficult start to the year. Bad news roiled the capital markets as investors worried that economic problems in China could potentially turn into a world crisis that could significantly damage the U.S. environment.

“It was a really rough bond market in CMBS in the first half of 2016,” says Kelly Layne, director with capital markets services firm HFF. As investors bought fewer CMBS bonds, the interest rates lenders could offer borrowers grew higher. “Spreads gapped out significantly,” says Layne.

Getting stronger

However, the CMBS markets have recovered somewhat since the beginning of the year, and the rest of the financial markets have provided ample liquidity. “It’s a good time to be a borrower, and a very good time to be in the market,” says Lo.

The interest rates offered by CMBS lenders have dropped once again to be within a dozen or so basis point of the interest rates offered by Fannie Mae, Freddie Mac and life company lenders for loans at similar leverage. “Since the first quarter, spreads have come in dramatically,” says Lo.

CMBS lenders now offer interest rates in the low 4.0 percent range for loans that cover up to 75 percent of the value of an apartment property. That’s not far from the rates offered by Fannie Mae and Freddie Mac for loans covering just 65 percent of the value of a property.

“We have seen a void in what Fannie Mae and Freddie Mac are willing to do, particularly on the lesser-quality assets,” says Layne. “These 1950s and 1960s properties, they are not the attractive assets to look at, but they cash flow great.”

The class-B and class-C apartment properties most likely to take out CMBS loans are also doing well. Multifamily buildings overall have relatively few vacant apartments, thanks to strong demand from renters. That’s especially true for the class-B and class-C apartments that don’t have to compete directly with all of the new, luxury apartments now opening. “Our class-C market has never been stronger,” says Layne.

Risk retention trouble

CMBS borrowers will have to face new uncertainty soon, however, as federal regulators begin to enforce new “risk retention” rules that require companies that originate CMBS loans to hold a certain amount of the risk of the loans on their own balance sheets. The risk retention rules will apply to loans securitized as CMBS after the end of 2016. Since it typically takes a few months to close and securitize a loan, the rules are increasingly likely to have an effect on the loans that CMBS borrower will take out this fall. As the date gets closer, lenders are likely to offer lower leverage and be less willing to make riskier loans.

“CMBS has always been the most liquid form of capital. That liquidity will be constrained,” says Lo. “There is a big rush of loans closing now as borrowers are trying to get in before risk retention takes effect.”

The new rules will challenge some of the expiring loans that need to refinance over the next year. “It will put loans that were [at] the cusp at even more risk,” says Lo.