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CRE Finance World, Autumn 2012

A Recovering Office Market May Not Move the CMBS Office Credit Needle Chart 5 which occurred in the first quarter of 2012, included the A and B Office Rents and Rent Growth note participations, which totaled $680.5 million of the $1.215 billion whole loan. Table 2 First-Half 2012 Fixed-Rate Office Loan Maturities Source: CBRE Maturities for fixed-rate loans in Manhattan, which is the largest © Standard & Poor’s 2012 CMBS office market and contributes about 20% of the outstanding office collateral balance, amounted to $2.33 billion of fixed-rate Primary markets, where rental growth has been higher, have loans in the first half — one-quarter of office maturities for the experienced fewer loans with NOI decreases than the secondary period. The payoff rate for these loans in the first half was 72.5%, and tertiary markets. This holds particularly true in core gateway significantly exceeding the overall fixed-rate office payoff rate. office markets, such as San Francisco and Washington, D.C., which Manhattan will have less of an influence on maturities in the have experienced rent increases of more than 20% over the past second half, when the market’s scheduled fixed-rate maturities 10 years. will total $1.20 billion, or just under one-fifth of the $6.62 billion in total fixed-rate office maturities (see chart 6). Our outlook for NOI performance remains most cautious for office buildings in secondary and tertiary locations (which contribute Chart 6 almost two-thirds of CMBS office collateral), as these markets CMBS Office Fixed-Rate and Floating-Rate Final Maturities (As of July 1, 2012) may take the longest to recover. In addition, some of the harder-hit housing markets, such as Las Vegas and Phoenix, have recorded some of the largest NOI decreases. NOI recoveries in these markets may lag those of other markets because rents in these areas are lower than they were 10 years ago. Office Maturity Payoffs Fell in the First Half, But Could Pick Up Again in the Second In the first half of this year, 323 fixed-rate office loans totaling $10.4 billion matured. The 2007 vintage accounts for approximately 72% of the first-half office maturities. In the first half, the portion of fixed-rate loans that paid off in full at maturity was 47.8%, and the payoff rate year-to-date through June was lowest for the 2007 vintage, at 38.4% (see table 2). These payoff rates would have been substantially lower if not for the extensions of several large-balance loans. The largest of these was the 666 Fifth Avenue property in Manhattan, which is part of the Wachovia Bank Commercial Mortgage Trust 2007-C31 and 2007-C33 transactions. The modifications, © Standard & Poor’s 2012 CRE Finance World Autumn 2012 20


CRE Finance World, Autumn 2012
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