This post may be a bit late, but it’s still relevant and worth a look. Richard Parkus, head of CMBS research at Deutsche Bank, gave a detailed presentation on the deteriorating CMBS and CRE markets. Here are some of his major conclusions:
The Rock:
- Speed of deterioration in loan performance is unprecedented, even with regards to the early 1990s.
- Total delinquency rate reached 4.1% in June, 2.2 times higher than in March and 3.5 times higher than in December. Delinquency rates are likely to soar higher over the next 24+ months on billions of dollars of pro forma loans that never stabilized and resetting partial IO loans.
- With 2,158 delinquent fixed-rate loans ($27.9 billion) special servicers may soon be overwhelmed.
- DB CMBS Research projects term losses will reach 4.3-6.3% for the outstanding CMBS universe ($31.3-46.4 billion), and 8.4-12.1% for the 2007 vintage.
The Hard Place:
- Massive maturity default risk.
- We expect that 64.4-72.5% of loans ($400-$450 billion) would not qualify for refinancing were they to survive until maturity.
- With well over $2 trillion in commercial mortgages maturing between now and 2013 in CMBS, banks and life company portfolios, the scale of potential problem is formidable.
- These problems are not the result of dislocated financial markets, rather they reflect the simple fact that the majority of loans do not qualify for a loan large enough to retire the existing debt. Improvements in rents and vacancy rates are also extremely unlikely to be sufficient to materially affect the scope of the problems.
You can view the entire 35 slide presentation here: Commercial Real Estate Outlook: Q2 2009 – Between a Rock and a Hard Place
Similar Posts:
- Peter Linneman: Where is Real Estate At? Where is it Headed?
- Sam Chandan on the State on the Commercial Real Estate Market
- The Answers to “Real Estate Finance and Investments” 12th Edition – William Brueggeman
