Recent data on macroeconomic forces in the market, such as lower than anticipated GDP and consumer confidence, have and will continue to play a large part in redefining expected future growth in commercial real estate, said panelists speaking at the CRE Finance Council's (CREFC) annual June convention in New York City.
The concern among industry players attending the event is that the longer these negative pressures on the economy drag on, the longer it will drag uncertainty in CMBS out.
The sentiment among speakers at the convention was that the market had transitioned to CMBS 2.0 faster than anticipated. This increase in new issuance volume has already led to some erosion in underwriting quality.
The more conservative lending seen in 2010 as well as the lowered overall leverage in CMBS yielded significantly higher-quality collateral. However, the pace of new issuance this year has lead to greater average haircuts to underwritten net cash flows and a slightly larger differential between stressed and underwritten LTVs.
Earlier this year the $5.2 million loan on the U.S. Geological Survey regional headquarters that was securitized in JPMCC 2010-C2 reported the first delinquency from the CMBS 2.0 universe of deals.
The future of the CMBS market in general is filled with uncertainty due to differing personal outlooks on growth. One panelist advised that buyers need to understand the asset they are buying in its entirety and all its characteristics.
Industry panelists also discussed CMBS 1.0 maturation, presenting the growing difference between older deals and newer, more problematic ones. While 75% to 80% of seasoned loans from the late 1990’s have successfully refinanced, those originating from 2006 have had a refinance success rate of less than 50%.
