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CRE Finance World, Summer 2013

The worst cohort in the study remains to be 1986 with cumulative 31.7% default rate of it origination loan size. Assuming all of the defaults go to liquidation, the loss of the 1986 cohort was about 12% under our current loss severity assumption. This exceeds the average BBB subordination level on conduit and fusion CMBS transactions being issued today. But AAA tranches are protected for losses higher than this worse vintage. Our loss estimates rely on a number of assumptions. For example, if we assume that restructured loans have close to 0% severity, the loss for the worst 1986 cohort drops to 7.3%. Conclusions While no study perfectly captures all market conditions and lender profiles, we can say with a fair amount of certainty that our results are encouraging. It demonstrates that even in periods of economic distress, lenders have a good deal of control over the quality of underwriting. If today’s lenders can learn the lessons of the past, and avoid the type of underwriting pitfalls that plagued some parts of the lending market, then maybe we can avoid creating another bubble in coming years when the market heats up. CRE Finance World Summer 2013 46 † Richard Parkus and Andy Bernard at Morgan Stanley supported us by providing us with the source files to previous studies. Howard Esaki provided expertise around the data and processes used on previous studies. 1 Snyderman, Mark P., “Commercial Mortgages: Default Occurrence and Estimated Yield Impact.” Journal of Portfolio Management, Fall 1991: 82-87. 2 Esaki, Howard and Masumi Goldman, “Commercial Mortgage Defaults: 30 Years of History.” CMBS World, Winter 2005: 21-29. 3 Brickman, David, Steve Guggenmos , and Jun Li; “Mysteries Revealed.” CRE Finance World, Summer 2011: 22-26. 4 Johnson, Britt, and Mary MacNeill and David Rho, “U.S. CMBS 2012 Loan Default Study, Commercial Real Estate Performance Stabilizes, April 3, 2013. 5 Nabwangu, David and Xuedong Yang, “The Timing of CMBS Losses.” CRE Finance World, Winter 2013: 60-63. 6 Jan de Beur, Marielle and Chris van Heerden and Lad Duncan and Landon Frerich, “The 2013 CMBS Default and Loss Study” Wells Fargo Securities Report, 2013 . Commercial Mortgage Defaults: From 1972 to 2011


CRE Finance World, Summer 2013
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