Research - NOVEMBER 11, 2014

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CMBS fundamentals show troubling trend

by Reg Clodfelter

Fundamentals in CMBS loans backed by lodging assets are trending downward.

Increasing competition among loan originators (there are 40 active originators this year, compared with 29 in 2013) as well as a larger appetite for risk among investors has caused CMBS fundamentals to trend in the wrong direction — especially among loans backed by lodging assets, according to a new data from Standard & Poor’s Ratings Services, a trend that the firm expects to continue into 2015.

In the most recent CMBS deals, lodging collateral is running much higher than historical averages, and average lodging exposure is higher than levels seen during the peak issuance years of 2206 and 2007. Furthermore, the percentage of interest-only loans in pools continues to increase and now exceeds the levels seen in 2005.

Both of these trends signal increased credit risk for these loans going forward, and these trends should only get worse if competition continues to

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