Loan defaults for U.S. hotel CMBS show no signs of slowing down as a large concentration of loans come due next year and in 2012 , according to Fitch Ratings.
Despite 20% hotel revenue declines since the peak in 2008 (the largest decline among the major CMBS property types), Fitch’s Outlook for the hotel sector remains Negative, F itch says. Delinquencies for hotel CMBS currently stand at 16.6%, representing approximately $8.4 billion in total hotel loan balance.
Fitch projects delinquencies to double from current levels and hit 25-30% by 2012 even as operating performance begins to stabilize.
“Hotel property values are off as much as 50% from 2007 peaks, but borrowers by and large have been able to keep their loans current because of historically low Libor rates,” said Senior Director Jeffrey Watzke. However, “Over three-quarters of floating-rate hotel loans originated during 2006-2007 mature in 2011 and 2012 into much higher fixed rates,” said Watzke.
Details are available in Fitch’s weekly e-newsletter, U.S. CMBS Market Trends (free with registration).
Technorati Tags: CMBS, commercial mortgage-backed securities, hotel, structured-finance
The delinquency rate on loans included in US Commercial Mortgage Backed Securities (CMBS) increased by 31 basis points in February to 5.73%, according to Moody’s.
“This month’s increase was relatively mild compared to the 44 basis point increase the DQT averaged over the previous five months,” said Moody’s Managing Director Nick Levidy.
Of particular note was a drop of two basis points to 5.22% in the delinquency rate of retail loans, the first decline in the delinquency rate in that sector since November of 2007.
This was largely the result of the fact that 45 loans totaling $780 billion that were delinquent as of the end of January became current, worked out or disposed of in February.
Among other property types, hotel loans saw the largest increase in delinquency, 82 basis points, to stand at 10.64%, multifamily saw the second largest climb rising 59 basis points to 9.36%, office property delinquencies increased 45 basis points to 3.98%, and the industrial property DQT currently stands at 4.28%, following a 40 basis point jump, breaking the 4% threshold for the first time.
For details, see US CMBS: Moody’s CMBS Delinquency Tracker, March 2010 (Premium)
Technorati Tags: CMBS, commercial-real-estate, mortgage-backed-securities, REIT, structured-finance
Reports spark new debate over safety of GlaxoSmithKline’s Avandia diabetes drug (Fierce Pharma)
New IMF paper suggests restricting foreign investments in developing countries can be helpful (Planet Money)
CMBS delinquency rate to reach 7 to 8 % in 2010, up from 5.15% at end 2009 (S&P via FT Alphaville)
Global pension assets grew by 14% from to $29.5 trillion at end-2009 after an 18% drop in 2008 (IFSL)
The Long Road to an Alternative-Energy Future (WSJ)
US credit card delinquency rate increased 10% to 1.21% for Q4 2009, flat YOY (TransUnion)
Washington DC facing commercial real estate foreclosure crisis (WashPost)
Global market share of ten largest consumer products companies declined further in 2008 (Deloitte Global Powers report)
Technorati Tags: (GSK), alternative-energy, CMBS, consumer-products, credit card ABS, GlaxoSmithKline, IMF, pension-funds
Despite an improving economy, Standard &Poor’s expects delinquencies on loans backing commercial mortgage-backed securities to keep rising until job numbers meaningfully improve and employers feel confident that a recovery is firmly underway.
“In 2010, we expect higher vacancies and lower rents to continue to fuel delinquencies, especially for underperforming properties,” S&P says in its latest CMBS Quarterly Insights. (Premium)
Selected excerpts:
We expect the delinquency rate to reach 7%-8% of the outstanding principal balance of U.S. CMBS in 2010—up from 1.10% at the beginning of 2009 and 5.15% at year-end—before peaking in 2011.
In the previous recession, which lasted from March 2001 through November 2001, delinquencies among Standard & Poor’s Ratings Services’ rated CMBS peaked at 1.96% in December 2003, approximately 25 months after the recession ended. And in the prior recession, spanning from July 1990 to March 1991, the delinquencies peaked at 7.53% in June 1992, 15 months after the recession’s end, according to data from the American Council of Life Underwriters (ACLI) on commercial mortgage delinquencies.
In addition to the impact of higher vacancies and lower rents, our delinquency forecast also considered the following factors:
- We’ve observed that default probabilities are generally highest during the third through fifth years of a loan’s life, which indicates that loans in the 2006-2008 vintages are now in their peak default periods.
- $28.6 billion of loans mature in 2010, approximately double last year’s $14.4 billion, although increasing use of loan extensions could mitigate maturity defaults this year.
- The largest concentration of CMBS loans (15% of the total outstanding balance) is in California, which Standard & Poor’s recently downgraded to ‘A-’, the lowest general obligation rating for any U.S. state.
Technorati Tags: CMBS, commercial delinquencies, commercial mortgage-backed securities, commercial-real-estate, structured-finance
Google, Apple gain smartphone share at expense of Palm, RIM and Microsoft (comScore)
TALF losses from CMBS could exceed $500m for US Treasury in the worst case scenario (GAO via FT Alphaville)
Assets of the largest 1,000 banks in the world grew by 6.8% in FY 2008/2009 to a record $96.4 trillion (IFSL)
Hulu Surpasses 1 Billion Monthly Video Streams for First Time (comScore)
Toyota still has great strengths, not least financial, but it has lost something precious and may never get it back (The Economist)
“Whether Bank of America’s conduct rises to the level of fraud, rather than mere stupidity … is the real question in the case” (NYTimes)
Why Some Homeowners Hope For Foreclosure (NPR)
“Berkshire “downgrade underscores the innate risk of the financial industry,” – Stifel Nicolaus
Technorati Tags: (bac), (GOOG), (PALM), (RIMM), AAPL, Apple, Bank-of-America, berkshire-hathaway, big banks, CMBS, financial-industry, foreclosures, Google, Hulu, Microsoft, MSFT, Palm Inc., RIM, smartphone, TALF, Toyota, Twitter, video
Standard & Poor’s today lowered its credit ratings on 43 European commercial mortgage-backed securities (CMBS) tranches and affirmed 19 ratings.
“The rating changes result from our assessment of the effect on these transactions of the unprecedented events in European real estate, including drops in property values in some markets that have exceeded those of the 1930s.”
“The difficulties for European banks and their real estate exposure have contributed to a shortage of real estate debt capital and we believe this could endure for a substantial period of time. Although borrower net operating income has generally held up, we believe economic difficulties will continue to exert downward pressure on debt service coverage ratios.”
In our view, the market remains under severe stress, with no obvious refinance route for more than one-third of outstanding debt in European real estate
finance.
For the full list of rating actions see “S&P’s Ratings List For European CMBS Transactions – Feb. 8, 2010 Review. (Premium)
Technorati Tags: CMBS, commercial mortgage-backed securities, commercial-real-estate, Europe, structured-finance
The delinquent status of the Extended Stay America loan was a large contributor to a 129 basis-point increase in overall U.S. CMBS delinquencies last month to 6%, according to Fitch Ratings.
‘While the Extended Stay loan is a significant contributor to the increase in delinquencies, a steady up-tick in all property types will lead to continued increases in the months ahead’, said Managing Director Susan Merrick. ‘Even without the classification of the Extended Stay loan as delinquent, the Index would have increased to 5.10% instead of 6%.’
For the fifth month running, each of the five main property types saw an increase in delinquencies.
Delinquency rates for those properties compared to last month are as follows:
–Office: 3.06% (vs. 2.66%); –Hotel: 16.44% (vs. 9.13%); –Retail: 4.94% (vs. 4.25%); –Multifamily: 8.33% (vs. 7.54%); –Industrial: 3.73%. (vs. 3.57%).
Technorati Tags: CMBS, commercial mortgage-backed securities, commercial real, delinquencies, structured-finance
The fallout from Commercial Real Estate exposures for banks has yet to run its course, in Standard & Poor’s opinion.
Although many of the problems are already evident in the homebuilding sector, and are well underway in commercial construction, these are the smaller sectors, S&P says in an Industry Outlook. “We believe the problems in the larger mortgage and multifamily sectors are yet to be felt because for now low interest rates and still-adequate cash flows make debt servicing possible. As rates rise and rent rolls decline further, we believe that delinquencies will rise in this sector as well, and prices will fall further, complicating the refinancing of these portfolios.”
We see no reason to believe the impact of this credit cycle in CRE will be less severe in terms of losses banks incur than that of the 1990s.
“However, this time the smaller banks have the heavier concentrations in CRE. They also have healthier capital cushions that could help them weather the painful cycle. Our stress tests show that most rated banks are able to absorb the associated losses without eroding capital below 4% of tangible common to RWA, as long as the losses are spread over a few years. We believe that downward pressure on the ratings will continue, however, as the banks that appeared to be better positioned in terms of their portfolios or capital cushions prove to be more vulnerable, or fail to maintain their business-generating power.”
The report includes a table of the combined commercial real estate loans, CMBS and CRE equity investments shown as the banks’ exposures as a multiple of their tangible common equity. Below are the banks with TCE ratios in excess of 4%.
Even for the most heavily exposed banks, underwriting varies, S&P says. For example, New York Community Bancorp Inc. (NYB) focuses on rent-controlled New York City apartment houses, which produce steady cash flow and do not experience significant vacancies, and where nonperforming CRE loans were only 2% of CRE loans at Sept. 30, 2009. Synovus (SNV), on the other hand, with a high proportion of construction loans, has 10% nonperforming assets (NPAs). Some, banks such as Zions Bancorporation,(ZION) have portfolios whose average LTVs at origination were in the mid-50% area, whereas others aimed for 80%.
For details see: Industry Outlook: The Worst May Still Be Yet To Come For U.S. Commercial Real Estate Loans (Premium)
Technorati Tags: banks, CMBS, commercial-real-estate, New-York-Community-Bancorp, regional-banks, Synovus-Financial-Corporation, Zions-Bancorporation
The Federal Reserve Bank of New York (FRBNY) and the U.S. Treasury initially rolled out the Term Asset-Backed Securities Loan Facility (TALF) program to revive the asset-backed securities (ABS) market, but other sectors are also benefitting from the program, particularly commercial mortgage-backed securities (CMBS), Standard & Poor’s says.
S&P’s latest Quarterly TALF Report (Premium) discusses how the program has played an important role in improving market sentiment toward CMBS and putting the CMBS market on the road to recovery.
“So far, only one new issue CMBS transaction has used the program since the FRBNY accepted CMBS as eligible for TALF,” said credit analyst David Henschke. “That transaction, however, marked a significant turning point because it was the first major U.S. CMBS deal in nearly a year and a half. And it paved the way for two non-TALF CMBS deals, which further promoted price discovery for issuers and investors.”
The FRBNY expanded the TALF program to include newly issued CMBS in June 2009 and legacy CMBS in July 2009. Since July 2009, loan requests under TALF to purchase legacy CMBS have averaged approximately $1.5 billion per month.
Despite this relatively small usage, cash CMBS super-senior spreads in the secondary market have narrowed significantly since the inception of TALF from a high of swaps plus 1,150 basis points (bps) in March 2009 to their current level of swaps plus 435 bps.
In the report, Standard & Poor’s also reviews its rated ABS transactions that were used as collateral for TALF loans during the 11 rounds of TALF funding, including auto loan and lease, credit card, student loan, equipment, and dealer floorplan. The report also compares TALF for ABS with TALF for CMBS.
Technorati Tags: ABS, asset-backed-securities, CMBS, structured-finance, TALF
Sentiment for EMEA commercial real estate picked up in H2 2009, but Moody’s remains cautious about a significant value recovery.
In Moody’s view, a few pre-conditions need to be met before the CMBS market can return.
The main ones are:
(i) continuing stability of the debt capital markets once central banks and governments progressively withdraw their support;
(ii) a sustainable recovery of the CRE market;
(iii) a broad return of CRE lending and;
(iv) improved sentiment towards the refinancing risk of outstanding CRE loans.
Although some progress was made last year, it will take more time before those conditions are fully met.
A potential capital market exit for CRE loans may take the form of “CMBS 2.0”
Looking beyond 2010, Moody’s expects that next to balance sheet lending, the capital markets will still play an important role in financing commercial real estate. This will be necessary to close the gap between the significant refinancing volumes due over the next years and the limited capital expected to be provided by banks. Covered bonds can bridge some of this gap but they are limited to the senior portion of loans and the bank issuing them retains the risk on balance sheet. Some form of CMBS will still be needed by banks to fully transfer the risk to the capital markets.
In Moody’s view, it is possible that, next to the legacy stock of CMBS transactions, a new generation of deals will start to emerge in the primary market (often referred as “CMBS 2.0” by market participants). These new deals will most likely contain lower leveraged loans and avoid some of the structural shortcomings of legacy deals. As a consequence, Moody’s expects that “CMBS 2.0” would be issued at tighter spreads than those at which pre-crisis deals trade in the secondary market.
For details, see 2009 Review and 2010 Outlook EMEA CMBS.
Technorati Tags: CMBS, CMBS 2.0, commercial-real-estate, Covered Bonds, EMEA
