Fitch Sees Further Deterioration in Real Estate Fundamentals

Fitch Ratings, apparently concerned on older vintages of commercial mortgage-backed securities (CMBS) transactions with upcoming maturities, has came out with a new report, warning that further deterioration in real estate fundamentals is expected over the next 18 to 24 months.

In the current RE environment it is hard that any property type in any market will not have some downward pressure. And vintages are no exception. In the more recent vintages of 2006-2008, it is the higher leverage loans that will most likely cause increased delinquencies. Logically, borrowers will be hesitant to keep feeding a deteriorating asset, when what little equity they had in the property is likely gone. It seems the pain in the housing keeps spreading.

Here is more data on Fitch’s report:

[BW]”Large loan floaters, pre-2000 vintage CMBS, and deals originated in the latter  half  of  2005 will  be  most  susceptible to downgrades,’ said Managing Director Mary MacNeill. ‘It should be noted that the magnitude of  these  expected negative rating actions will not be as significant as that of recent actions already taken on later vintages.’

With  recent  vintage  CMBS  encompassing nearly half of the Fitch-rated  universe   and   among   the  weaker  performing  deals, Fitch  expects approximately   90%  of  its  entire  rated  CMBS portfolio  to  retain investment  grade  ratings  once  all  reviews are complete. While Fitch expects these  older  vintage  transactions  to perform  better from a ratings  standpoint,  ‘it  is  now  evident  that all CMBS vintages are susceptible  to  the severe economic conditions of the past two years,’ said MacNeill.

Fitch’s  third-quarter  review  of 2006-2008 CMBS deals, which concluded earlier  this  month,  resulted  in  rating  affirmations  on 80% of the tranches by  balance (totaling  $186.1  billion), and downgrades for the remaining  20% ($44.3  billion). Fitch expects few additional near-term negative rating actions among these 78 deals.”

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