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Figure 7 Specially Serviced Repeat Loans (Cash-In/Out) The chart below further demonstrates that prior to 2008, repeat loans that were once specially serviced rarely had cash flow growth that exceeded increases in leverage; whereas after 2008 they typically had cash flow growth (or declines) that were more favorable than their leverage increases (or declines). Figure 8 Repeat Loan Characteristics (Specially Serviced Assets) CRE Finance World Autumn 2014 56 Perhaps the starkest example comes from summarizing the vintages by our previously assigned categories. In the chart below, the 2003-2008 vintages had repeat loans that were once specially serviced and on average recorded a leverage increase (red bar). So far in the post bubble vintages this has not been the predominant experience. Figure 9 Repeat Loan Characteristics (Specially Serviced Assets) Conclusions The final assessment of CMBS new issuance lending as seen through the lens of repeat loans remains in murky territory. In order for it to be seen by DBRS as unequivocally credit positive on CMBS bond performance the cash flow growth of properties would need to exceed leverage increases – but it still does not and never has. What is positive is that value increases in postcrisis CMBS tend to exceed leverage increases for the first time in sustainable form in CMBS history. This is however not in small part due to interest rate declines and compressing cap rates. Additionally, the fact that new issuance CMBS have repeat loans whose previous loan terms averaged 9.75 years, means that these loans are from the earlier vintages of CMBS where credit underwriting was tighter, and debt constants and the interest rate environment were higher. It is perhaps not fair to suggest that cash flow growth should exceed leverage growth for the time being – because most of the repeat loans were originated in starkly different interest rate environments. As the latter vintages Repeat Loans in CMBS


CREFW-Fall2014 10.15.14
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