CRE News You Need to Know | Liberty Bridge Loan & CMBS RatesApril 16, 2015
National Real Estate Investor reported that delinquency rates on CMBS loans fell for four straight months but that trend halted in March when the overall rate matched the month before standing at 5.58% and actually increased for industrial, multifamily and retail properties. Bright spots included the hotel and office sectors both of which saw delinquency rates improve to 4.20% and 6.06% respectively.
The total issuance for CMBS reached $26.9B after another $10B was added in March according to Commercial Mortgage Alert. This is compared to $20.3B in the same period last year.
A survey done by Marcus & Millichap on investors in the CRE marketplace showed that rate concerns will not slow momentum in the industry. According to a story in GlobeSt.com investor confidence has “reached an all-time high” and Hessam Nadji from M&M said that the momentum will continue “for a variety of reasons” even with interest rate hikes looming. He attributed a healthy labor market, better than expected economy over the last 18 months and an increasing demand across all property types as reasons. Nadji also said that interest rates won’t do anything “radical” over the next year or so giving the market plenty time to adjust to any changes.
Minutes released from the last FOMC meeting showed that members are split on when to start raising rates. In a passage from the minutes participants were said to have “expressed a range of views about how they would assess the outlook for inflation and when they might deem it appropriate to begin removing policy accommodation.” Some experts are predicting rate hikes won’t even happen until Q3.
The expected wave of CMBS maturities will pose a challenge in valuation when investors refinance loans originated from 2005 to 2007, according to a recent report. Loans backed by retail properties make up almost 30% of that $300B in CMBS maturing over the next three years and many property owners will need to contribute cash in order to refinance loans coming due. Although there are more CMBS lenders than there were 10 years ago, that doesn’t mean underwiritng standards will be any looser. Occupancy costs and competitive position in the marketplace are where CMBS lenders focus when they consider retail financing. In 2015, retail loans that were maturing saw 14% reported as delinquent in February.
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