UK Commercial Mortgage Arrears Likely to Continue to Rise
CreditSights takes a deep dive into the UK commercial real estate market and doesn’t like what it sees down there.
Excerpts from European CRE: Bad News Followed by Worse
Commercial property is an important component of European bank lending with $2.1 trillion in debt outstanding; roughly 10% of all domestic lending or 16% of all non-financial lending. In addition, there has been rapid growth in European CMBS over the past decade. Having been almost non-existent at the turn of the decade, European CMBS issuance peaked at 67 billion in 2006. The IMF estimates that there roughly $200 billion worth of outstanding securities backed by European commercial mortgages.
Roughly 20% of debt by value is in some kind of breach of covenant. Admittedly, a single 1.5 billion securitisation of one French office building accounts for roughly a quarter of that percentage. But even if we remove that deal we’re left with roughly 15% of securitised debt in breach of covenants in addition to the nearly 5% that have missed a payment.
This means that in the near term the number of mortgages missing debt service payments or only making partial payments will rise as a result of falling revenues. However, a possibly greater concern is that unless property prices recover dramatically then growing numbers of borrowers will be unable to repay the mortgage principal at maturity as well.
Given that rising property prices would require either the return of cheap financing or a substantial recovery in rents, any hope that this is a crisis that will go away given time is likely wishful thinking.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
