CMBS Returns Stay Six Months Strong in August: Barclays
Commercial mortgage-backed securities (CMBS) posted the sixth consecutive month of positive excess returns in August. It marks the longest streak of such returns since December 2006, according to Barclays Capital’s monthly CMBS review. CMBS remains one of the best performing sectors across Barclays’ US aggregate index. The August rally was heaviest in the first half of the month, but overall CMBS credit performance deteriorated at a steady pace. The rate of delinquency more than 30 days rose to a 4.76% as loss severity continued to rise across all sectors. “The worst performing sector this month rotated back to multifamily, followed by hotel,” Barclays fixed income researchers said. “Vintage-wise, delinquency is led by recent vintage loans. Delinquencies appeared to be driven by lease rollovers and high levels of mezzanine debt.” Year-to-date new issue supply of US CMBS remained low overall in August compared with year-ago levels. The second legacy CMBS Term Asset-Backed Securities Loan Facility (TALF) funding received $2.3bn of bids, of which $2.1bn were accepted in the month. Barclays noted surprise that $2bn of bids were rejected, and suggested the disclosure of more extensive details on the acceptance/rejection process to ease investor uncertainty. “For now, we retain our neutral stance on the basis but may look to turn positive if we approach key non-policy related technical support levels for potential re-REMIC creation,” researchers said. “We remain cautious on subordinate tranches.” TALF may not do enough to relieve the commercial mortgage market, and a clearinghouse of lower tranches of CMBS is becoming necessary, according to Ross Prindle, managing director of the Real Estate Services practice at independent financial advisory and investment banking firm, Duff & Phelps. Write to Diana Golobay.