Thank you for sharing!

Your article was successfully shared with the contacts you provided.

NEW YORK CITY-Moody’s on Friday reaffirmed its February analysis of CMBS loans, saying that most ratings of 2006-2008 conduit/fusion and large-loan CMBS deals will remain broadly stable. However, the ratings agency added the caveat that the assumptions for the ratings hold up “as long as conditions in the commercial real estate market and the general economy do not significantly worsen.”

In that February ratings action, Moody’s downgraded senior investment grade bonds, including junior AAA-rated classes, four to five notches, compared to five or six notches for low investment-grade and speculative-grade bonds. Mezzanine and “super duper” AAA CMBS were left untouched in February, although Moody‘s on Friday warned that mezz AAA classes, “while stable for now, are very sensitive to further increases in expected loss.”

Since February, “property prices have continued their march downward,” according to Friday’s report. As GlobeSt.com reported earlier his month, the Moody’s/REAL National All Property Type Aggregate Index for March, released in late May, showed a year-over-year decline of 20.8% from March 2008. In the report released on Friday, Moody’s predicts a peak-to-trough price decline of more than 30%, along with capitalization rates trending higher for the next several quarters.

However, the report notes, “despite the grim prognosis for property values, it is important to repeat the point made in the February report announcing our ratings sweep: that property value is primarily a concern at loan maturity.” With the bulk of CMBS maturities not due to occur until 2016 or 2017, “the maturity profile of the universe of CMBS loans is relatively benign.”

The possibility that this profile could change over time is “something that we are keenly aware of and paying close attention,” Nick Levidy, managing director with the structured finance group at Moody’s, tells GlobeSt.com. “If the market stays as broken as it is until ’16 or ’17, when the bulk of CMBS maturities start to occur, it is possible that prior to that time, there would be negative rating implications. But we emphasize that this is seven years from now.”

Adds Mike Gerdes, SVP with the structured finance group, “A lot can happen between now and then. If you believe the reverse-J type of recovery, and if there’s any deviation from that upwards or downwards, we monitor that.”

Gerdes says that while the June report occurs just a few months after the February analysis and rating actions, “We‘re not intending to do these on a quarterly basis, because we think we captured a forecast looking fairly far ahead.” He adds that if conditions warranted it, there would be a follow-up.

Friday’s report comes two weeks after Standard & Poor’s warned that a proposed change in its rating methodology could result in a downgrade for top-rated CMBS. Levidy declines to comment on differences in the Moody’s and S&P methodologies, but points out that his firm took action “early on. We feel that where we moved ratings in February is okay for now.” He acknowledges that the update was produced in response to the S&P announcement.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.