Roundup: Fed Sees Loosening of CRE Underwriting
Banks' commercial real estate lending underwriting standards have eased slightly over the past three months while standards for residential mortgages remained more or less unchanged, the Federal Reserve said in its most recent senior loan officer opinion survey.
A "moderate net fraction of banks" saw "eased lending standards for commercial real estate loans over the past three months," according to the Fed.
"Almost one-fourth of the domestic respondents, on net, had eased lending standards on commercial real estate loans over the past three months, about the same fraction as in the January survey," the Fed said. "All but one of the 12 foreign branches and agencies active in commercial real estate lending reported unchanged standards. On net, 20% of the domestic respondents reported stronger demand for these loans in the April survey, nearly the same fraction as in the January survey. One-third of the foreign banks noted that demand had increased somewhat over the past three months, up from 15% in January."
Credit standards on residential mortgages "were largely unchanged, on net, in the April survey, in contrast to a small net easing of standards in January," according to the Fed.
Meanwhile, "On the demand side, domestic and, to a lesser degree, foreign banks reported an increase in demand for ... commercial real estate loans," the Fed added. "Also, a noticeably smaller net fraction of domestic banks reported weaker demand for residential mortgages ... than had done so in the January survey."
" ... Though demand for residential mortgage loans reportedly weakened again over the past three months, the net fraction of banks reporting lower demand fell to 18%, compared with about 25% in the past two surveys," said the Fed.
CMBS Delinquencies Fall
New York-The delinquency rate on U.S. commercial mortgage-backed securities fell to a four-year low of 1.04% at the end of the first quarter, according to a Standard & Poor's report, falling from 1.18% at the end of 2004.
The report also identifies declining cash flows on some maturing floating-rate loans as an area of concern.
After peaking in the fourth quarter of 2003 at 1.96%, the CMBS delinquency rate has continued to decline, S&P reports.
First-quarter issuance of commercial mortgage-backed securities was $33 billion, 72% higher than CMBS issuance for the first quarter of 2004, which also may have helped to lower the delinquency rate.
Roy Chun, a managing director in S&P's CMBS surveillance group, said, "The primary catalysts for the delinquency rate's decline in the first quarter were many of the same forces that existed in 2004, including liquidity, low interest and capitalization rates, improving real estate fundamentals and job growth."
And Larry Kay, a director in S&P's CMBS surveillance group, noted, "Positive loan behavior also contributed to the delinquency rate decline in the quarter, including significant declines in the 30-day and 60-day categories, and an unexpected drop in the multifamily delinquency rate and amount."
About $8.55 billion of floating-rate loans are maturing in 2005, according to S&P.
Of this, loans totaling $1.11 billion reach their final balloon maturities in 2005. About 49% of the floating-rate loans reporting 2004 financial information have had net cash flow declines since issuance, S&P reports, which can be attributed to property market deterioration, as well as properties that maybe in transition not living up to underwriting expectations.
Standard & Poor's expects the biggest challenge facing floating-rate loans to be maturity defaults, rather than term defaults. Loans with reduced cash flows and higher interest rates since origination may find it difficult to get new loan proceeds that are sufficient to take out maturing loans.
However, S&P is seeing "many underperforming loans being refinanced at full proceeds" in current market conditions.
Office Occupancy Up
Boston-Occupancy in office markets nationwide for the first quarter reached levels not seen since the fourth quarter of 2000, according to a report from Colliers International.
Absorption of office space for the first quarter totaled 18.5 million square feet, compared to 10.1 million square feet for the first quarter of 2004, Colliers reports.
The first quarter also represents the eighth consecutive quarter of positive absorption in the office market, the commercial real estate company reports.
Vacancy rates for office properties went down to 15.2% for the first quarter, from 15.4% at the end of 2004, Colliers said, while office rents went up.
Ross Moore, vice president/director of research, Colliers, said, "We anticipate further growth in the second quarter and for the balance of 2005. Just a few office markets project a slowdown, with the vast majority forecasting demand to meet or surpass first-quarter levels."
GMACCM Deal Downgraded
New York-The variable-rate class A insured notes of seven GMACCM Mortgage Trust I deals have been downgraded from AAA to AA-plus by Fitch Ratings as a result of a downgrade of the insurance company that provided credit enhancement for the transactions.
The affected transactions were as follows: series 1999-A, 1999-B, 1999-C, 1999-D, 1999-E, 1999-F and 1999-G.
Fitch said the ratings reflect the credit enhancement provided by insurance policies issued by American International Specialty Lines Insurance Co., an indirect wholly owned subsidiary of American International Group Inc.
The subsidiary was downgraded by Fitch and the ratings on the transactions are "solely dependent upon the underlying credit of the insurance policy provider," Fitch said.
SNAPSHOT: CMBS Delinquencies
4th Qtr. '03 1.96%
4th Qtr. '04 1.18%
1st Qtr. '05 1.04%
Source: Standard & Poor's
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