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CRE Finance World, Winter 2012

CMBS Collateral Performance: Inside the Numbers Thomas A. Fink Senior Vice President Trepp, LLC E estate lending segments, CMBS continues to show the in the secondary trading spreads.various balance sheet lenders as part of a weekly survey. The TreppReal Estate Portfolio Pricing Index demonstrates that balance sheetlenders have been able to increase the implicit spreads based onthe quoted coupons for newly originated loans following wideningvery month, Trepp publishes the monthly delinquencyreport for a set of U.S. CMBS collateral. Although theheadline number remains above 9%, it has come off thehighs seen earlier in the year. Among all commercial real highest delinquency rate. In our view, the headlines only tell a part of the story: we need to look further to see in what direction the Chart 2 data points. Trepp Real Estate Portfolio Pricing Index (TREPP-i™) Indicative Spreads for Commercial Real Estate Loans vs. Treasury The CMBS and the overall capital markets remained steady in the (50–59% Leverage, Amortizing, 10 Year, Fixed Rate) first half of 2011. However, the uproar over the U.S. debt ceiling, disappointing macro economic indicators, the European debt crisis, and problems specific to the CMBS market, all contributed to disruption of the earlier stability in the sector. Chart 1 (AAA CMBS Spreads) shows that spreads spiked in late summer 2011, challenging those conduit lenders who had accumulated loans for securitization. While we have not returned to the wild volatility which crushed the market in 2008 and 2009, a great deal of uncertainty has been reintroduced. Chart 1 AAA Spread to Swaps Over Time With coupons trending up for new loans, how is the legacy collateral performing? We demonstrate the level of “troubled” CMBS assets in Chart 3. Trepp definition of troubled assets here is rather broad and includes performing loans on the watchlist, performing loans with the special servicer, as well as non-performing (delinquent) loans. The chart shows that volume of distressed loans rose throughout the fiscal crisis, and peaked only in the summer of 2010. We have seen a steady decline since that peak influenced by a shrinking universe of watchlisted loans, as loans pay off or move into the delinquent loan category. We have also seen a consistent pace of liquidations and payoffs in 2011. We continue to wait for a Chart 2 tracks the average quoted spread to Treasury for 10 year, significant decline in the volume of distressed loans, which will good quality, fixed rate commercial real estate loans. This indicator demonstrate that long-term secular improvements in commercial is aggregated by Trepp based on the responses collected from real estate has arrived. A publication of Winter issue 2012 sponsored by CRE Finance World Winter 2012 63


CRE Finance World, Winter 2012
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