Trepp published its CRE Research Report: Ranking Property Type and Regions by CMBS Expected Loss Percentages that applies the Trepp-Default Model (Trepp-DM) to the loan universe to measure the performance of the market at any particular moment in time.
NEW YORK, Sept. 5, 2019 /PRNewswire-PRWeb/ -- Trepp, LLC, a leading provider of information, analytics, and technology to the structured finance, commercial real estate, and banking markets, released its CRE Research Report: Ranking Property Type and Regions by CMBS Expected Loss Percentages. The full report can be accessed here: https://info.trepp.com/ranking-property-type-and-regions-by-cmbs-expected-loss-percentages-pr
As of August 16, 2019, more than $15 trillion of debt outstanding are pricing with negative-yields, countries such as Germany, Japan, France and Sweden reported negative 10-year government bond yields, the U.S. yield curve officially inverted, and trade tension between the US and China continues to keep the world on its toes. With so much uncertainty gripping the global economy, there is no better time than the present to check-in on the health of the CRE market.
"It's clear that in recent history, loans belonging to different property types have performed quite differently from one another," said Dylan Wall, Trepp Research Analyst. "Taking all of the unique differences among sectors into consideration, we decided to calculate expected losses by property type to gauge which types are outperforming and which are underperforming."
The portfolio used in this study includes all non-delinquent, single property loans from public conduit CMBS deals with an origination date after 2000. The property types observed are retail, multifamily, industrial, lodging, office and mixed-use. The averages calculated in this research piece are weighted based on the outstanding balance of each individual loan. This study also explores how the geographic location of a loan's collateral influences a loan's performance.
A combination of property level variables, such as property type and occupancy rate, loan-level variables, including DSCR and LTV, and macroeconomic variables through the country's unemployment rate were collected in this study. These inputs are fed into a macro scenario-driven stress testing model that calculates a loan's probability of default (PD), loss given default (LGD) and expected loss (EL).
Assuming there are no changes to loan and macro-level variables over the next year, we expect our loan universe to incur a nine basis point loss. Although EL, PD and LGD rates are quite low, there are certain property types and regions that CMBS participants should keep an eye on. More specifically, lodging loans have stood above the rest of the property types with the highest EL%, and we may see this value inflate if markets continue to destabilize. At the regional level, ESC (IL, IN, MI, OH and WI) and NE (CT, MA, MN, NH, RI and VT) reported higher than average EL%s as well.
For additional details, download Trepp's complete CRE Research Report: Ranking Property Type and Regions by CMBS Expected Loss Percentages: https://info.trepp.com/ranking-property-type-and-regions-by-cmbs-expected-loss-percentages-pr. For daily CRE and industry commentary, follow @TreppWire on Twitter.