Commercial properties are taking on larger and larger loans relative to their stabilized income—and that could mean trouble down the road, according to a review by Moody’s Investors Service of commercial mortgage-backed securities issued in the first quarter.
“We are beginning to see some signs of credit slippage,” says Tad Philipp, Moody’s director of commercial real estate research. However, Moody’s also found some good news in the short-term for these loans: Because of low interest rates and strengthening property fundamentals, they shouldn’t have much trouble making their monthly mortgage payments.
Conduit loans are now getting dangerously large compared to the income from the properties, according to Moody’s, which rated four of the nine CMBS issuances in the first quarter. The loans Moody’s rated (excluding Freddie Mac) had an average Moody’s loan-to-value (MLTV) ratio of 98 percent. “Conduit loan leverage is now poised to bounce back to just above 100 percent MLTV in the second quarter based on the 11 transactions in our pipeline,” Philipp says.
Read more...Moody’s Warns Against High Leverage | Commercial Banks content from National Real Estate Investor
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