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CMBS Activity Expected to Remain Slow in 2010
Commercial mortgage-backed securities (CMBS) are expected to remain below $15 billion in 2010 as borrowers cope with falling property values. According to Alan Todd, a JPMorgan analyst, debt sales backed by CBD office, hotel and shopping center loans could be as low as $10 billion this year. Aaron Bryson of Barclays Capital is more optimistic, predicting transactions totaling approximately $15 billion for the year.
The federal government has promised to revive the $700 billion CMBS market, even as property values fall and securing loans is difficult. In 2007, a record $237 billion of debt was sold. That fell precipitously in 2008 to just $12 billion and even further to $1.4 billion in 2009. Activity isn’t expected to increase until the second half of 2010.
“The banks would like to lend,” Todd noted. “There are fewer properties to lend against.” He pointed out that many owners went heavily into debt during the boom and now cannot locate properties not currently encumbered to lend against. The dearth of new loans cuts off funding to borrowers whose debt is maturing. Approximately two thirds of loans bundled and sold as securities – totaling $410 billion — may require additional cash as property values fall and underwriting standards get tougher, according to Deutsche Bank AG research.
Moody’s Investor Services reports that commercial real estate prices in the United States are 42.9 percent lower than their 2007 peak.