Analysts expect securitized commercial mortgage loans will be strong enough to shoulder interest rate increases at refinance when they come due in 2022 and 2023.
Rising
So long as the economy continues to strengthen, said Fitch managing director Huxley Somerville, “CMBS 2.0 term defaults are unlikely.”
While time will tell how U.S. CMBS 2.0 loans will perform at maturity, “it is fairly safe to assume” these loans will perform well in a higher-rate environment, analysts wrote. Because these loans have been
“Should the broader economy reverse direction,” Somerville said, “any downgrades to CMBS 2.0 loans would be purely a byproduct of the economy’s downturn,” not asset quality.
In his view maturity risk concerns do not appear to be substantiated by data for several reasons.
While there are “substantially more variables at play that could determine the ultimate success of CMBS 2.0 loans refinancing,” he explained, in cases when income growth matches the growth in debt service required by the new mortgage rate environment, “the chances of successful refinancing are much better for CMBS 2.0 loans.”
He warns, however, that interest-only loans may entail lower underwriting standards “to refinance on the same metrics but for the higher mortgage rate.”
