Fitch Ratings said in a report today that improved fundamentals in the in the U.S. commercial real estate (CRE) sector has led to a greater percentage of stable outlooks for investment grade CMBS deals.

The rating outlooks for investment grade U.S. CMBS bonds in Fitch’s rated portfolio are 88% stable. 

Through the end of June, the rating agency affirmed 1,417, downgraded 1,257 and upgraded only 84 classes. 

Following these actions, 50% of the rating agency's portfolio is still investment grade, with 97% of ‘AAA’ classes assigned a Stable Rating Outlook, the rating agency said.

At this time last year, 57% of the portfolio was investment grade, but only 45% carried a stable outlook, including 91% of ‘AAA’ rated bonds.

"While delinquencies are still expected to increase and most losses have yet to be realized, Fitch’s CMBS ratings are expected to remain largely stable," said Managing Director Mary MacNeill.

The improved fundamentals in the sector has also led to an increase in new CMBS issuance. However, with the rise in volumes also comes a level if deterioriation in underwriting standards for some of the latest CMBS 2.0 deals.

While Fitch agrees that underwriting standards have declined in recent months, that deterioration thus far has been off of its very high levels – there is still quite a way to go before standards approach levels seen in 2007, viewed by many as the most volatile vintage for CMBS.

"It was only a matter of time before CMBS underwriting standards began to decline from such an unusually high level," said Huxley Somerville, group managing director and head of U.S. CMBS for Fitch.

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