Despite significant headwinds in the form of upcoming loan maturities and market forces, the tepid recovery of the CMBS market will persist in the near term.
*Commercial property fundamentals are gaining traction, in aggregate, leading to the slow recovery of the CMBS market. When the credit spectrum is delineated by property type, the multifamily segment stands out: It has potential to reach full recovery much faster than its cohorts, given that uncertainty surrounding the single-family housing market provides ample demand for existing stock.
*Issuance is tracking slightly below last year's pace, though a strong finish in the fourth quarter will push 2012's issuance slightly past 2011's.
*As with all financial assets, downside risks to our CMBS outlook include the worsening of European debt crisis and policy uncertainty surrounding the upcoming elections. More tangible threats to our outlook include upcoming maturity balloon dates, and the more medium- to long-term, risk of new construction outpacing fundamental absorption rates.
The CMBS market's tepid recovery continued in the third quarter, and we expect this trend to extend itself in the near term. The overall delinquency rate for "all deals," which excludes Canadian CMBS and agency deals, edged downward in August, to 9.9%. The overall delinquency rate still remains well above its prerecession average of less than 1%, and is still within close proximity to its postrecession peak of 10.3%, reached in May.
Read more...Outlook for the CMBS Market via Morningstar
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