Tuesday, August 3, 2010

CMBS Defaults Could Reach 11% in 2010

Realpoint projects commercial mortgage backed securities (CMBS) will continue defaulting.

With the combined potential for large-loan delinquency in the coming months and the recently experienced average growth month-over-month, Realpoint projects the delinquent unpaid CMBS balance to continue along its current trend and potentially grow to between $80 and $90 billion by year-end 2010. Based on an updated trend analysis, we now project the delinquency percentage to potentially grow to 11% to 12% under more heavily stressed scenarios through the year-end 2010.

Their June report showed unpaid CMBS at $60 billion or 7.7% of issuance. Fitch has 9.5% of fixed-rate conduit CMBS loans in its universe in default at the end of Q2.

At particular risk are highly leveraged loans from 2005-2007, produced from frothy private equity deals. Pete Peterson's Blackstone cashed in commercial real estate at the right time.

While The Carlyle Group used CMBS facilities to finance many deals during the period, their recent cash-a-palooza likely means they have the funds to make good on commitments. But, will they turn their back on security holders, like they did with Carlyle Capital Corporation? Might they pull a BlackRock and just walk away? Stay tuned.