Page 49

CREFW-Fall2014 10.15.14

A publication of Autumn issue 2014 sponsored by CRE Finance World Autumn 2014 47 Figure 2 Borrower Returned Equity % More Qualitative Factors As one would expect, retail, office, hotel and multifamily properties make up the collateral for at least 85.0% of the loans in the cashout universe. As depicted on the graphs, leverage and debt service for each of these property types are consistent with the Top 20 universe, with the exception of multifamily whose credit metrics were the weakest in 2014 for the cashout universe. Notably, 20 out of the 22 multifamily loans had KLTVs greater than 100% while seven had KLTVs greater than 110%. However, although leverage in both subsets has reached new highs for 2.0/3.0 CMBS transactions, on average, debt service has remained at or above 1.35x for most multifamily loans. Larger Share of Equity Does Not Imply More Risk To further explore the impact a cashout has on metrics, we broke the loans out by percentage of equity returned to the borrower in 10% increments from >0% to 50%+. We broke the loans into these groups to gauge if a larger share of equity returned to the borrower impacts credit metrics more. The chart to the right summarizes the key metrics across the groups as well as the breakout in property types. As illustrated, there is not a direct correlation between percentage of equity returned to the borrower and shifts in leverage and debt service. For loans with the largest percentage of equity returned, within the 50%+ bucket, the average KLTV was 93.6% with a KDSC of 1.78x, which are more favorable metrics compared to the broader CMBS universe. There is however, a wide range within that average. Nine loans out of the 39 loans in the bucket (20.5%) carried KLTVs higher than 110%. Of those, two loans were also full-term IO. Nonetheless, no loans in this group had what we would describe as risk layering ie the combination of a KLTV greater than 100%, a lower than average KDSC and an IO term. However, seven of the loans in this bucket were acquired or developed in 2009 or later, exhibiting less of an operating history. It is especially difficult to gauge a property’s true stabilized level taking into account the valleys treaded during the recession. Figure 3 KLTV Weighted Average Figure 4 KDSC Weighted Average Behind the Cashout


CREFW-Fall2014 10.15.14
To see the actual publication please follow the link above