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CRE Finance World, Autumn 2012

A Recovering Office Market May Not Move the CMBS Office Credit Needle The principal balance of 2007 vintage office loans maturing in Office Collateral Performance Will the second half is 88% lower than in the first, which will more than Likely Remain Under Pressure offset the drop in maturities in the strong Manhattan market. As a We believe anemic tenant demand, the decline in office loan result, we believe the payoff rate could improve in the second half. originations, and the rollover of peak-rent leases to lower market While we don’t expect the payoff rate to reach the 2011 level of 63%, rates will continue to hurt office collateral performance. And although when the market benefited from strong office loan originations, fundamentals in the office market have improved, the office recovery it could end up in the mid-50% area, which is more in line with could turn sluggish if there isn’t a meaningful pickup in jobs, putting historical quarterly averages. The Mortgage Bankers Association further pressure on performance. reported that office loan originations increased 83% year-over- year in 2011 but fell 9% in the first quarter of 2012 compared with first-quarter 2011 (see chart 7). On the heels of lower originations, the loss severity rate for office loans increased to 39% in the second quarter from 30% in the first. Office collateral losses in the second quarter were widespread, affecting 24 states, with the weaker housing markets — such as Arizona and Nevada — recording loss severity rates exceeding 60%. T ri M on T Chart 7 Office Mortgage Loan Originations Turning Obstacles into Triumph Asset Management Servicing and Consulting Source: Mortgage Bankers Association Atlanta · New York · Los Angeles · Amsterdam © Standard & Poor’s 2012 www.trimontrea.com A publication of Autumn issue 2012 sponsored by CRE Finance World Autumn 2012 21


CRE Finance World, Autumn 2012
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