reporter2
04-04-22, 10:43
Covid-hit property loans redefaulting: Moody's study
Apr 04, 2022
New York
(BLOOMBERG) TROUBLED real estate loans for the likes of hotels and offices that saw payments get back on track after the 2020 crash are redefaulting - signalling more pain for commercial mortgage-bond investors.
At least 13 loans that went 60 or more days delinquent by August 2020 had resumed timely payments at some point, but then re-defaulted between last October and March. That's according to a new study from Moody's Analytics focused squarely on loans bundled into commercial mortgage-backed securities (CMBS).
The main culprit, at least for the retail and office loans, is that commercial landlords who lost tenants during Covid are still having trouble re-leasing space, especially as businesses wait to determine their future needs and hold off on longer-term lease commitments. This is likely to cause the overall CMBS delinquency rate to increase in the coming months, Moody's said.
"There are a core group of loans that have lost tenancy that are struggling to recover," said Moody's Analytics researchers led by Darrell Wheeler. "This observation comes from reviewing the underlying troubled loans and finding that many loans had lease expiry challenges before March of 2020. In some cases, Covid may have hindered their leasing recoveries, as many appear to still have lower cashflows and uncertain recovery paths."
Meanwhile, for hotel loans that redefaulted since October, it's still too early to find a common theme, since they all appear to be suffering from their own unique situation, Wheeler told Bloomberg. In fact, hotels overall have had a relatively swift rebound from the depths of the pandemic, and the economic recovery is likely to boost their performance further, Moody's data show.
But the overall percentage of "troubled" CMBS loans - defined as 60 or more days delinquent, or in forbearance - increased from 7.78 per cent to 7.89 per cent in February, according to March remittance reports. Moody's conducted the study by assessing a key credit bellwether for real estate known as the debt service coverage ratio, a measure of whether a property's income can cover its debt.
Vacancy rates for office properties in the US have somewhat risen in the past two years, but for CMBS conduit deals the outlook might be even worse given their exposure to certain urban markets, Barclays Capital strategists said recently. Vacancy rates rose to 12.2 per cent from 9.7 per cent, the bank said, citing CoStar data, but in some markets like San Francisco the increase has been higher.
Apr 04, 2022
New York
(BLOOMBERG) TROUBLED real estate loans for the likes of hotels and offices that saw payments get back on track after the 2020 crash are redefaulting - signalling more pain for commercial mortgage-bond investors.
At least 13 loans that went 60 or more days delinquent by August 2020 had resumed timely payments at some point, but then re-defaulted between last October and March. That's according to a new study from Moody's Analytics focused squarely on loans bundled into commercial mortgage-backed securities (CMBS).
The main culprit, at least for the retail and office loans, is that commercial landlords who lost tenants during Covid are still having trouble re-leasing space, especially as businesses wait to determine their future needs and hold off on longer-term lease commitments. This is likely to cause the overall CMBS delinquency rate to increase in the coming months, Moody's said.
"There are a core group of loans that have lost tenancy that are struggling to recover," said Moody's Analytics researchers led by Darrell Wheeler. "This observation comes from reviewing the underlying troubled loans and finding that many loans had lease expiry challenges before March of 2020. In some cases, Covid may have hindered their leasing recoveries, as many appear to still have lower cashflows and uncertain recovery paths."
Meanwhile, for hotel loans that redefaulted since October, it's still too early to find a common theme, since they all appear to be suffering from their own unique situation, Wheeler told Bloomberg. In fact, hotels overall have had a relatively swift rebound from the depths of the pandemic, and the economic recovery is likely to boost their performance further, Moody's data show.
But the overall percentage of "troubled" CMBS loans - defined as 60 or more days delinquent, or in forbearance - increased from 7.78 per cent to 7.89 per cent in February, according to March remittance reports. Moody's conducted the study by assessing a key credit bellwether for real estate known as the debt service coverage ratio, a measure of whether a property's income can cover its debt.
Vacancy rates for office properties in the US have somewhat risen in the past two years, but for CMBS conduit deals the outlook might be even worse given their exposure to certain urban markets, Barclays Capital strategists said recently. Vacancy rates rose to 12.2 per cent from 9.7 per cent, the bank said, citing CoStar data, but in some markets like San Francisco the increase has been higher.