Studying CMBS 2.0 Loan Performance 10 Years On

Next year will mark the first time a meaningful amount of post-crisis 10-year commercial mortgage-backed securities loans come due. So Kroll Bond Rating Agency studied 2009-vintage loans to see how well they will refinance.

Using the KBRA Credit Profile Portal and Trepp data, KBRA identified 110 current non-defeased 10-year loans with a 2020 maturity and with full-year 2018 net operating income available. The report, Ten-Year CMBS 2.0 Maturities Drawing Near, said the loans have generally benefited from strong price appreciation in the underlying properties–the CoStar equal-weighted U.S. Composite Index nearly doubled while they have been outstanding.

“Judging from the weighted-average coupon of the loans, at 5.7 percent, they should be well positioned to refinance given that the weighted-average coupon for KBRA-rated conduits was 4.3 percent as of September,” KBRA said. The report noted that figure has dropped below four percent for deals KBRA is currently analyzing.

To test the loans, KBRA applied various capitalization rates to full-year 2018 net operating income to understand how well the loans would refinance under various loan-to-value scenarios. In its base case, KBRA used an 8.32 percent weighted average capitalization rate and a 65 percent loan-to-value ratio. Under these metrics, most loans would be able to refinance–86.7 percent by loan balance and 90.9 percent by count.

A look at individual property sectors shows the base case refinance rate drops to 83.8 percent for retail and 86.0 percent for others including mixed-use, self-storage and manufactured housing parks. The remaining property types all had higher refinance rates in KBRA’s base case analysis.

“We note, however, that results could vary a good deal from the base case owing to the idiosyncratic nature of real estate as well as occupancy, near-term rent roll and building quality,” KBRA said. “This may be particularly true of the mall sector, which may struggle to find financing as it has generally fallen out of favor outside of fortress properties with high sales.” Fitch Ratings, New York, reported the CMBS 1.0 universe is winding down with just over $10 billion remaining. The CMBS 2.0 delinquency rate currently equals 0.59 percent, up slightly from 0.57 percent in August.