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CRE Finance World, Winter 2013

The Timing of CMBS Losses Figure 9 The findings confirm the suspicion of Esaki in his update to the Timing Default by 2000 Vintage Snyderman study, “The default rate curve… masks individual cohort patterns which vary substantially from the average. Default timing for individual origination cohorts varies depending on the state of the commercial real estate market at the time of origination and the subsequent years.”3 As well as the original thoughts of Snyderman in his first study, “These patterns imply that seasoning has less impact on reducing default risk than one might have expected. Instead, it seems that loan cohorts that have weathered a real estate recession have lower default rates over their remaining lives….”4 Stripping away the Great Recession years (and subsequent years of constrained liquidity in CRE)5 from our data set reveals a curve Figure 10 that is more similar to the original Snyderman studies, which Timing Default by 1999 Vintage showed a general but uneven trailing off of default rates given loan seasoning.6 Figure 12 Timing Defaults by Year Since Origination Exclusive of Recession Figure 11 Timing Default by 1998 Vintage We also note that underwriting standards at the year of origination have a significant impact on the shape of the curve, but the impact is trumped by the recession that took place in that latter part of our sample set. Refinance Risk Our findings demonstrate the growing importance of refinance risk, which is finally appearing in CRE loss statistics. Anecdotally, CMBS market participants as a whole seemed to discount this risk in the run-up to the credit crisis, as refinance defaults were largely Our data set therefore strongly suggests that the frequency of absent from empirical CMBS data in the run-up to the Great default depends more on economic conditions and less upon the Recession (2008 to 2009). Esaki/Snyderman and Lancaster et time elapsed since the loan origination date. al. did not specifically highlight this risk: The Esaki/Snyderman CRE Finance World Winter 2013 62


CRE Finance World, Winter 2013
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