Thursday, February 5, 2009

CMBS Loan Deterioration

Via Zero Hedge, Deal Junkie, and Calculated Risk, Moody’s is in the process of reviewing more than $300B in outstanding CMBS debt (more than half of all outstanding CMBS) with downgrades inevitable.

Separately, the MBA’s Commercial/Multifamily Newslink summarizes a REIS forecast that CMBS defaults for loans made in 2006-07 will in excess of 12%. Some markets will be hit particularly hard:

Reis expects this year's default rates to reach 20.8 percent in Sacramento, 18.4 percent in San Bernardino, Calif., 16.6 percent in Phoenix, 15.8 percent in Oakland, Calif. and 14.5 percent in Detroit.

It pays to be somewhat skeptical of forecasts, but the increase in loans now on servicer watch lists is alarming:

CMBS loans on servicer watch lists increased from 0.72 percent of total balance in January 2008 to 15.6 percent last month, and Reis said more than 20 percent of CMBS loans secured by office properties are on the watch list compared to 15.2 percent of all retail loans and 15 percent of all apartment loans.

I’ve previously posted on why income property loan performance tends to deteriorate rapidly, and why some vintage years are hit especially hard.