CMBS Collateral Performance: Inside the Numbers

CRE Finance World, Summer 2012

CMBS Collateral Performance: Inside the Numbers Thomas A. Fink, CRE Senior Vice President, Managing Director Trepp, LLC E additional concern in the April numbers is the increasing offering on newly originated loans. However, interest rates for fourChart 2 tracks the quoted spread to Treasury for 10 year, goodquality, fixed rate commercial real estate loans as provided toTrepp as part of a weekly survey. Our survey shows that balancesheet lenders were able to increase the spreads that they werevery month, Trepp publishes the monthly delinquencynumber for a set of U.S. CMBS collateral. As we all know,that headline number for April 2012 rose again and liftedthe number to within 8 basis points of the all-time high. An level of loans which are past the originally scheduled balloon date, year loans remain in and around the 4% range, with little variability but otherwise current on their payments (“performing matured as to property type. In discussion with some lenders, they have balloons”, CREFC IRP status code “4”). The performing matured begun to shorten the maturity on new loans in an effort to reduce balloon category accounted for 1.16% of loans tracked by Trepp. the risk of being caught with a long portfolio of lower interest rate While the number is down slightly from 1.17% from March 2012, loans in a rising rate environment. if these loans were to be considered delinquent, rate would have been 10.97% in April. The level in April of 2012 is almost four Chart 2 times the January 2011 level of .31%. Trepp Real Estate Portfolio Pricing Index (TREPP-i™) Indicative Spreads for Commercial Real Estate Loans vs. Treasury U.S. CMBS, as a market, continues to show the highest delinquency (50–59% Leverage, Amortizing, 10 year, fixed rate) rate for commercial real estate loans. That bad news is offset by the continued signs of improvement in the CMBS market. The read we get throughout the commercial real estate industry is that CMBS is becoming competitive as a source of capital among a larger pool of borrowers. Obviously, the final proof will be in the year-end issuance total. CMBS spreads held steady through the first four months of 2012, having recovered ground from the spike which impacted the market in the middle of 2011. Chart 1 (AAA CMBS Spreads) clearly shows that the market has been stable since spreads spiked in late summer 2011. Chart 1 AAA Spreads to Swaps With interest rates stabilizing for new loans, how is the collateral performing? First up is a bar chart (Chart 3) showing the level of “troubled” assets in U.S. CMBS, measured in billions of dol- lars. Troubled assets include performing loans on the watchlist, performing loans with the special servicer, and delinquent loans. The chart shows that volume of distressed loans rose throughout the fiscal crisis, peaked in the summer of 2010, and has steadily declined since the peak. We continue to wait for a significant de- cline in the volume of distressed loans, which will demonstrate that long-term secular improvements in commercial real estate have helped to reposition distressed assets. CRE Finance World Summer 2012 38


CRE Finance World, Summer 2012
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