In one sense, DBRS Morningstar's advice that tenant quality is important in a recessionary environment is straightforward. Tenant quality is always an issue when trying to understand the financial strength of an investment of development project in any part of CRE.
Upward pressure on prices and downward pushes on cap rates have all been justified by the anticipation of future rent growth. All that depends on whether the tenant remains in business and capable of sustaining increases in expenses.
"Tenant quality is an indicator of future cash flow stability for real estate entity issuers, especially in a recessionary environment, and the current rising interest rate environment is leading market participants to wonder if (or when) a recession could be arriving," the firm wrote.
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