The performance of commercial mortgage-backed securities may be peaking as a result of cyclical conditions in the real estate and capital markets, according to a report by Moody's Investors Service.The market cycles, combined with weaker loan underwriting, may indicate that the era of low delinquencies and strong upgrade/downgrade ratios is coming to an end, the rating agency said. Moody's said CMBS delinquency rates have an inverse relationship with property prices, falling when property values rise. A big increase in commercial property values since the first quarter of 2001 "suppressed delinquency levels and promoted high rates of defeasance," Moody's said. But Tad Philipp, a Moody's managing director who wrote the report, said capitalization rates are at all-time lows and rents are reaching cyclical highs in many markets, indicating that the property cycle may be reaching a turning point. If so, delinquencies may begin rising, he said.

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