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CRE Finance World, Autumn 2013

A publication of Autumn issue 2013 sponsored by CRE Finance World Autumn 2013 37 The Canadian CMBS delinquency rate as of June 30, 2013, was 0.47%, which pales compared with the U.S CMBS delinquency rate of 8.89%. We believe that the strong property markets — coupled with Canadian mortgage loan financing, which usually provides the lender with recourse to a guarantor with tangible assets — support collateral performance. It is our view that this provides a strong incentive for borrowers to avoid loan defaults. Yet even with this strong performance, Canadian CMBS issuance has been very slow. Volume peaked in 2006 at C$4.7 billion then fell to C$3.5 billion in 2007. Since then, there has been very little issuance, with only two transactions totalling C$0.5 billion issued in 2012. Year-to-date through June 30, 2013, C$250.4 million of CMBS has been securitized in one transaction. Mortgage loan collateral has been primarily from secondary and tertiary markets, originated by non-bank sponsors. While conduit spreads have been tightening, they still remain above pre-crisis levels. As of June 30, 2013, Standard & Poor’s had ratings outstanding on 23 Canadian CMBS transactions with an aggregate loan balance of approximately C$4.9 billion. More than 80% of that amount will come due by the end of 2016, with one-half of it maturing in 2016, reflecting a large issuance year and 10-year term maturities (see Chart 13). Chart 13 Canadian CMBS Loan Maturities We expect that CMBS Canadian issuance could reach C$1.0 billion in 2013 but don’t see significant activity returning to this sector in the near future. In the office and industrial sectors, there could be some pressure in both demand (due to economic developments) and supply (reflecting increased development). Multifamily is expected to remain healthy, though increasing home ownership is an obstacle. Retail will continue to be affected by online sales and will be tested by Target’s entrance into the Canadian market with the scheduled opening of more than 100 stores. SINGAPORE AND AUSTRALIA Stable Market Conditions, but No New Issuance CMBS issuance in Australia peaked in 2006 with just over A$5 billion. Prior to that, it had averaged about A$2 billion a year. Issuance dropped off significantly after 2006. We do not expect significant new issuance of CMBS in Australia or Singapore, with any activity in the medium term most likely to come from the refinancing of existing programs. In Australia and Singapore, single-borrower deals are the predominant securitized transaction type. CMBS collateral in Australia and Singapore currently consists mostly of retail and industrial properties. CMBS collateral principal balance in Australia and Singapore has decreased over the past four years. At present, three publicly rated CMBS transactions remain in each market. They are performing within expectations, against a backdrop of stable macroeconomic conditions and improving real estate markets. There have been no defaults on rated notes in the sector in these markets. Refinance risk has eased in line with improvements in lending to the sector and general trading conditions. However, it remains the key risk for the remaining transactions. The retail property sector remains flat in Australia. Subdued consumer sentiment is the key challenge in the medium term. Office markets are generally stable, with moderate supply pipelines. Office markets dependent on mining and the resources sector currently face the greatest risk. The industrial and logistics property sector continues to be characterized by stable demand and supply. In Singapore, the retail property market remains tightly held. Office markets are generally stable, with moderate supply pipelines. Demand and supply in the industrial and logistics property market remain stable. The effects of a potentially worse-than-expected global economic outlook and uncertainty in the financial sector — including slowerthan expected economic growth in China and further deterioration in the eurozone (European Economic and Monetary Union) — are the key threats to our stable macroeconomic outlook. CMBS Global Recovery Continues to Be Slow and Uneven


CRE Finance World, Autumn 2013
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