Shopping Center Business

MAY 2016

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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CMBS 244 • SHOPPING CENTER BUSINESS • May 2016 W ith the close of the first quarter of 2016, the commercial mort- gage-backed securities (CMBS) and commercial real estate markets are a quarter of the way through the 2015-2017 wall of maturities. Much has been made of the almost $300 billion in 2005-2007 vintage CMBS loans coming due, includ- ing their performance at maturity and their effect on the overall market. So far, the story is highly positive. Of the $80.9 billion in non-defeased, non-delin- quent loans that were outstanding at the end of 2014 and due to mature from Jan- uary 2015 through February 2016, 94.02 percent by balance has paid off with 0.29 percent in losses. The remaining loans account for $4.84 billion outstanding as of this February, and 68.74 percent of those are marked as delinquent (includ- ing those marked as "Performing Beyond Maturity"). In 2012, maturing five-year loans from 2007 came due and caused some ripples in the market. The U.S. CMBS delinquency rate hit its highest level ever in the summer of that year as close to $50 billion in 2007 loans came due in a still-recovering market. After another two years of price appre- ciation and fundamental improvement, including continued net operating income (NOI) growth in all major property types, the market digested the heavy maturing volume of 2015 better than anticipated. New 2015 issuance near $100 billion was enough to take on the refinancing of the $80 billion in 2015 maturities. Viewing the performance of 2015 maturities, solid aggregate NOI growth and record com- mercial real estate price levels in a vacuum would lead to a very positive outlook for 2016 and 2017 maturities. Unfortunately, the bottom-up view of the market is only half of the story, and the negative macro factors coming from the top down could significantly hamper the CMBS market's ability to handle the next seven quarters of increasing maturing volumes. Oil's slide since last year has ham- mered high-yield fixed income, bank bal- ance sheets and energy company stocks. Pair that with the first Federal Reserve rate hike and growth concerns in China, and the result has been quickly widening new issue CMBS spreads. In the past few weeks, those spreads have recovered a de- cent portion of their losses but spreads re- main well wide of last year's tightest levels. Smaller conduit shops have pulled back from the market and the big lenders are CMBS Scenarios Debt yield and loan-to-value hurdles put maturing CMBS loans at risk. Sean Barrie

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