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CRE Finance World, Autumn 2013

A publication of Autumn issue 2013 sponsored by CRE Finance World Autumn 2013 35 Chart 9 Japanese Breakdown of Loan Repayments/Nonrepayments by Number of Loans By the end of 2012, servicers had completed the recovery process for 82% of the defaulted loans. Of these, servicers fully recovered 55% of the securitized principal amounts, and the remaining 45% incurred principal losses that averaged 23% of the securitized principal amount. Despite the stabilizing CRE market, we do not expect Japan’s CMBS new issuance market to recover in the near term for several reasons: • The volume of asset trading remains low, limiting a borrower’s need for new financing. • Domestic banks have ample liquidity and are actively looking for opportunities to lend. As a result, the average spread on bank lending has tightened significantly, thus making securitization not economically viable for issuers. • Investors in Japanese CMBS are predominantly banks, which are expected to perform the same level of due diligence when they purchase CMBS as when they extend a loan directly. Thus, banks do not have an incentive to choose CMBS over lending. NORTH AMERICA U.S. As Clouds Appear, CMBS Issuance Pauses The overarching message that the U.S. central bank still expects to start scaling back its massive bond purchase program (depending on economic circumstances) will likely continue to scare the market. We expect that following the summer slowdown, new issuance will show renewed life in the fall — but at a cautious pace. We are forecasting that CMBS private-label new issuance could end 2013 totaling approximately $70 billion. According to Commercial Mortgage Alert (CMA) releases, this would be one-third higher than the 2012 full-year total ($48.4 billion) and about where the market was in 2001 when pulling out of the recession (see Chart 10). Chart 10 U.S. CMBS Issuance Source: Commercial Mortgage Alert Real Estate Investment Migrates to Secondary Markets Despite a slower-than-normal real estate recovery, property fundamentals and prices continue to improve. Overall demand is increasing, reflecting job growth and confidence that the economic picture is brightening. Completions have been low, and we believe that supply should remain constrained — at least in the near term. The major exception has been the multifamily sector, where construction has ramped up in various markets amid strong demand for rental housing. CMBS Global Recovery Continues to Be Slow and Uneven


CRE Finance World, Autumn 2013
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