CMBS Issuance Plummets To '96 Levels: Moody's
First-half issuance of commercial mortgage bonds decreased by 91% from year-ago amounts, according to rating agency.
August 5, 2008
The issuance of bonds backed by commercial real estate loans in the first half of this year has plummeted to levels not seen since 1996, according to Moody's, which reported on Tuesday that issuance of commercial mortgage bonds has dropped 91% from the first six months of last year.
Since the market's inception in the early 1990s, the commercial mortgage-backed securities (CMBS) market has been a regular source of fees and income for many Wall Street dealer firms. The credit crisis that has roiled banks and brokerages since last August has made it tougher for lenders to price mortgage loans and then resell commercial property loans cost-effectively.
Just over $12 billion of commercial mortgage-backed bonds were sold in the first half of 2008, compared with $137 billion in the first six months of 2007, said Moody's, which warned that the rest of the year likely will be one of lower issuance. "Ultimately Moody's expects the CMBS market to revive but the process could take another year or two," the credit rating agency said.
"While it will be a very long time before we see annual issuance volumes in excess of $200 billion again, most market participants continue to believe the portfolio lenders will not be able to absorb the financial needs of the commercial real estate industry and the capital markets will continue to play a role," stated Moody's.
In the meantime, the commercial real estate market has seen an uptick in problem loans and prices of commercial properties have dropped.
Moody's said loans delinquent by 60 days or more backing US CMBS transactions rose to a 0.45% rate in June, up one basis point from the month before and 23 basis points higher from a low of 0.22% in July 2007.
Moody's/REAL Commercial Property Index showed commercial real estate prices fell 8.8% from their peak in October 2007. Transaction volume has dropped dramatically, with the average monthly volume through the first half of 2008, at $2.9 billion, less than half of the $6.4 billion monthly average for 2007.
For more information on related topics, visit the following:
