CMBS Due Dates May 'Jump-Start' Distressed Buying: Moody's
Investors anticipate the combination of near-term defaults and looming due dates on commercial mortgage backed securities (CMBS) maturities to “jump-start” distressed buying opportunities starting next year, according to PricewaterhouseCoopers’ Kropacz Real Estate Investor Survey. Despite a still-limping US economy, tight credit markets and declines in commercial real estate values, equity investors continue to wait for forced sales and more motivated selling on the part of distressed owners, according the survey's Q309 findings. The de-leveraging of the commercial real estate industry disappointed many investors poised on the sidelines for those distressed sales. "Some investors sense that near-term defaults with commercial banks will allow them to acquire quality assets at steep discounts, as banks may no longer be able to continue to 'pretend and extend' troubled loans and would be forced to place assets up for sale,” said Susan Smith, editor-in-chief of the survey. The looming debt of commercial banks and $153bn of CMBS loans could provide distressed buying opportunities before they are due in 2012, according to the survey. Surveyed investors anticipate further declines in the underlying fundamentals of the commercial real estate industry through 2009 and into 2010, evidenced by the reported decrease in the average initial-year market rent change by all 28 markets participating in the survey. Manhattan and San Francisco could expect rent declines by as much as 20% and Phoenix as much as 15%. Boston, Denver, Los Angeles and San Diego expect declines of as much as 10%, according the survey. As rents declined in Q309, CMBS performance continued to deteriorate in August, according to Moody's Investors Service's monthly CMBS delinquency report. Moody's measured a 3.23% delinquency rate of payments more than 60 days late through August, up from July’s 3.02% rate and up from 0.5% the same time last year. The South experienced a 4.66% delinquency rate, up from 4.32% in July, the worst in the country. In the West, delinquencies reached 3.51%, and the East kept a delinquency rate of 1.84%. Nevada and Michigan lead all states with the highest delinquency rates of 8.69% and 8.55% respectively, according to Moody’s. “While an industry-wide recovery is not expected to begin until 2012, the pace of the recovery will vary for each property sector, as well as across individual geographies,” the PricewaterhouseCooper’s survey reads. Write to Jon Prior.