Loans backing commercial mortgage-backed securities (CMBS) in Europe, the Middle East and Africa (EMEA) will continue to perform poorly in the next five years, according to a new report issued by Moody's.
Loans backing commercial mortgage-backed securities (CMBS) in Europe, the Middle East and Africa (EMEA) will continue to perform poorly in the next five years, according to a new report issued by Moody's.
The rating agency, which bases its view on a number of assumptions reflecting the continued weakness of the economic recovery, said that CMBS transactions with loans secured by non-prime properties that need refinancing in 2012-2013 face the greatest risk of downgrade because the recovery of the lending market for non-prime properties will take longer than previously expected.
The agency anticipates that the availability of financing for non-prime properties will not increase meaningfully over the next two years. In addition, capital values for non-prime properties will remain low over the next years. Thus loan-to-value levels will remain high.
According to Moody's, the risk of downgrade is greatest for transactions backed by loans that refinance in 2012-2013, especially transactions that have already had downgrades in the past two years.
The agency expects that the CRE lending market will only gradually improve for the prime segment of the market, while the availability of financing for the secondary property market segment will not improve before 2012/13. Available LTV ratios will slowly increase to levels between 70% and 75%, but this will heavily depend on the property quality and the tenancy.
