{"id":1004313389,"date":"2019-04-02T02:28:03","date_gmt":"2019-04-02T10:28:03","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004313389"},"modified":"2019-04-03T03:59:44","modified_gmt":"2019-04-03T11:59:44","slug":"morningstar-cmbs-outlook-suggests-soft-ish-landing","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/morningstar-cmbs-outlook-suggests-soft-ish-landing\/","title":{"rendered":"Morningstar CMBS Outlook Suggests Soft-ish Landing"},"content":{"rendered":"
\"Steve<\/a>

Steve Jellinek, Vice President, Morningstar Credit Ratings. Image courtesy of Morningstar Credit Ratings<\/em><\/p><\/div>\n

As the economic cycle winds along\u2014and likely down\u2014might things really be different this time around?<\/p>\n

The CMBS Second Quarter Market Outlook from Morningstar Credit Ratings LLC seems to suggest that a 2008-style meltdown in the commercial real estate sector is unlikely, despite where we are in the current cycle.<\/p>\n

\u201cMost economists suggest that the real estate cycle has reached or surpassed its peak. Despite real estate being a cyclical business, the commercial real estate market is far healthier and less risky than it was a decade ago<\/em>,\u201d the report states, concluding that \u201cwe expect U.S. property fundamentals to remain stable and delinquencies to stay low.<\/em>\u201d<\/p>\n

Though a slowdown might occur, Morningstar doesn\u2019t anticipate a crash like that of 10 years ago. The main reason the report cites is tougher underwriting standards mandated by Dodd-Frank since December 2016. As a result of that, Morningstar says, \u201cLenders have shifted to lower-leveraged, higher-quality properties for loans packaged in commercial mortgage-backed securities<\/em>.\u201d<\/p>\n

The report notes Trepp LLC figures showing that conduit loans issued last year averaged a loan-to-value ratio of 57.6 percent, versus a pre-crisis peak of 69.7 percent in 2007. Underwritten debt service coverage ratios too have improved, reaching an average of 2.06x in 2018, up from a low of 1.36x in 2008.<\/p>\n

Overall economic indicators, such as the average annual real GDP growth rate, plus the lack of signs that the economy is overheating, generally indicate little danger of a boom-and-bust cycle, according to Morningstar.<\/p>\n

\u201cThe upshot of this slow and steady expansion is that it may prolong the current business cycle<\/em>,\u201d wrote the report\u2019s author, Steve Jellinek, vice president of Credit Risk Services. \u201cDemand for commercial space is strong, but not so robust as to spur excess lending and speculative new development<\/em>.\u201d<\/p>\n

And finally, there are fewer troubled CMBS loans, Morningstar points out. As one indicator, the special-servicing unpaid principal balance continues to decline, hitting a post-crisis low of $16.3 billion in February.<\/p>\n

Research from the Mortgage Bankers Association in mid-February indicated that CMBS issuance fell<\/a> by 12 percent last year, to $77 billion, as spreads have tightened.<\/p>\n

The tactical situation<\/h2>\n

As for more immediate developments, Morningstar reported, the CMBS delinquency rate improved 12 basis points in February, to 1.57 percent. The delinquency rate has now fallen in 11 of the past 14 months and has decreased 75 basis points year-over-year.<\/p>\n

Morningstar expects the delinquency rate to remain below 2.0 percent for much of this year, based on \u201csteady new issuance volume pushing the outstanding balance of commercial mortgage-backed securities loans higher and special servicers actively resolving or liquidating assets.<\/em>\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

The ratings agency\u2019s latest quarterly report cites multiple reasons why a CRE crash like the Great Recession\u2019s does not seem to be in the cards.<\/p>\n","protected":false},"author":882,"featured_media":1004275202,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21808,21825,23891,21742],"tags":[35826,38161,34040,33331,35305],"class_list":["post-1004313389","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-finance","category-national","category-latest","tag-cmbs","tag-morningstar-credit-ratings","tag-mortgage-bankers-association","tag-the-dodd-frank-act","tag-trepp-inc"],"acf":[],"yoast_head":"\nMorningstar CMBS Outlook Suggests Soft-ish Landing - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/morningstar-cmbs-outlook-suggests-soft-ish-landing\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Morningstar CMBS Outlook Suggests Soft-ish Landing\" \/>\n<meta property=\"og:description\" content=\"The ratings agency\u2019s latest quarterly report cites multiple reasons why a CRE crash like the Great Recession\u2019s does not seem to be in the cards.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/morningstar-cmbs-outlook-suggests-soft-ish-landing\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2019-04-02T10:28:03+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2019-04-03T11:59:44+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/10\/financing-news-01b.png\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"620\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Scott Baltic\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/morningstar-cmbs-outlook-suggests-soft-ish-landing\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/morningstar-cmbs-outlook-suggests-soft-ish-landing\/\",\"name\":\"Morningstar CMBS Outlook Suggests Soft-ish Landing - 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