CMBS Maturities Face Eventual Day of Reckoning

Moody’s reiterated its February analysis of CMBS loans,  noting that the majority of 2006 – 2008 ratings of conduit/fusion and large-loan deals are still stable.  The ratings agency warns that the assumptions hold up “as long as conditions in the commercial real estate market and the general economy do not weaken.”

Since February, “property prices have continued their march downward,” the Moody’s report notes.  Moody’s envisages a peak-to-trough price slide of more than 30 percent, with cap rates trending higher over the next several quarters.

“Despite the grim prognosis for property values, it is important to repeat the point made in the February report announcing our ratings sweep:  that property value is primarily a concern at loan maturity.”  Because most CMBS loan maturities will occur five to six years from now, “the maturity profile of the universe of CMBS loans is relatively benign.”

If the markets remain as weak in 2016 or 2017 as they are now, obviously there would be negative rating implications for CMBS.