As of July, according to Moody’s, the delinquency rate on U.S. CMBS loans was 3 percent. The delinquency rate is expected to hit somewhere between 5 and 6 percent by the end of 2009. Meanwhile, vacancy rates are rising and will continue to do so until the end of 2010 or the beginning of 2011.
Correspondingly, property values have taken a dive off a very steep cliff, by a good 35.5 percent since late 2007. More value depreciation is anticipated.
When, oh when, will the industry start to convalesce? First, there has to be job growth: “Increased employment means fuller office buildings, more crowded retail stores, more hotel beds slept in, more factories and warehouses humming with activity, and thus, more cash flowing through to all landlords.”
Once that happens, hotels are generally thought to recover first. …and office buildings last.
New CMBS issuance will only occur after “values slowly stabilize,” and as investors develop a new appetite for CMBS. Which will take a while, and which is, frankly, sobering news for a market that once saw 45 percent of its lending capacity come from commercial mortgage-backed securities.
drubinstein@observer.com
