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The loan experienced a large 21% yoy increase in its loan amount at the first repeat in 2006. Unlike the two previously described loans the change was driven not by debt constant or cap rate declines but by cash flow increases of 28% yoy in the same period. LTV in the first repeat thus remained the same as did DSCR. In February of 2012 the loan was transferred to the special servicer for maturity default. It was ultimately resolved without a loss and re-securitized in 2013. The 3rd origination of the loan in 2013 has roughly the same valuation but a lower leverage point and going in LTV of 56%. In terms of both going in and exit debt yields the loan is on firmer footing than it has been in its previous two terms. This loan had a cash-out at its first repeat but then a cash-in at its second (as might be expected for repeat loans that are distressed in their prior term). CMBS Repeat Loans Cash-In/Out In the next graph we summarize the trend towards cash-in or out loans. Looking at the green bars we see that just 18% of repeat loans in CMBS history involved a cash-in, a trend that changes through time approaching just 5% for the vintages that were marked by the highest leverage increases. Post-crisis CMBS repeat loans have trended towards having more instances of cash-in, but these instances remains below 50% of all repeat loans and have begun to trend downwards again more recently (see the fitted line that summarizes average percent of cash in). Figure 4 Repeat Loan (Cash-In/Out) CRE Finance World Autumn 2014 54 Our measure of cash-out is, in and of itself, not always credit negative. DBRS expects a measure of cash-out when accompanied by strengthening collateral fundamentals such as cash flow growth through rent increases, growth in the NRA of the property, a change of hotel flag or a change in tenant profile. In newer CMBS vintages this increase in loan amount has more often than not been accompanied by increased value growth — but not in equal part by increased property cash flow growth. As such, the CMBS industry has not achieved a sustainable basis for improved bond performance, but rather has seen a compressing cap rate environment facilitating unsupported leverage increases. This is demonstrated by the black bars in the graph. Since 2009 this trend, while still evident, has not yet become as pronounced as it was during the pre-crisis years (2005 to 2007). CMBS Repeat Loan Characteristics The chart below segregates the vintages of CMBS into four buckets that each have defining characteristics of repeat loans in terms of NCF growth, interest rate and cap rate migration, value growth, and leverage increase. Figure 5 Repeat Loan Characteristics Repeat Loans in CMBS “The data available from repeat loans can provide applesto apples comparison of financial metrics through time. While repeat loans have recently signaled some relative stability, the industry has not yet achieved a basis for long-term sustainability, but has benefited from a compressing cap rate environment, which is facilitating leverage increases that will be difficult to support in a higher rate environment.”


CREFW-Fall2014 10.15.14
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