Tuesday, August 3, 2010

Good news and bad news on CMBS - which is it?

Both, probably, but more good than bad in my opinion.

Depending on what you read, CMBS delinquency rates are at an all-time high of 8.71%.  This article citing Trepp LLC is the first I came across. And I remember when I said, oh, that 2.1% default rate is not so bad.  And Fitch is telling us that the default rate is 9.48%, even closer to the 11-12% predictions that have been out there.  So that is bad news, yes?  Some call it part of the continuing slo-mo crash.  Yes and no.

The good news, if you look at the chart, is that the upward trend is flattening.  Is that a sign of moderation?  Maybe.  But let's not forget that there is a ton of CMBS debt coming due - a trillion dollars of it over the next five years.  Again, good and bad.

But what I find most encouraging is this: loan mods.  According to Trepp we have had more mods in the first half of 2010 than in 2008 and 2009 combined.  So the servicers are getting their acts together, borrowers are coming to the table, and more deals are even going to REO. 

And that brings to mind another factor that I like: pricing. I'm reading and hearing about some deals being done at fire sale prices.  No matter the fundamentals or the market or the conditions, sometimes the price is just so right that you pull the trigger and do it.  And as I have been reading, some private equity folks just can't sit on money forever and are taking that plunge, even back into development where the potential returns can be the best.  (The offset to that, however, is whether Dodd-Frank will helpful or harmful to CRE; we just do not know yet and we all know uncertainty is not a good thing.)

So, I feel like Tevye in Fiddler on the Roof: On one hand, this; on the other hand, on the other hand....But I come out a little more positive than negative at the end of the day.