COMMERCIAL ARENA STILL RUNNING STRONG
We are approaching mid-summer and the commercial real estate market is still running strong. Despite the slowdown in the residential theater, the commercial sector is ever expanding. In fact, there has been an increase in jobs in that domain while the opposite rings true for the other side. Consumer spending is even on a rise; it is as if the housing market is in a cursed bubble. What gives? It seems that the brunt of it has been buffered by Wall St. buy-back calls which has been the demise of a handful of subprime originators. Further, these moves have resulted in strict underwriting regulations for lenders to abide by. What is going to happen when existing ARMs reset to higher rates. The numbers suggest that the impact should be minimal since these loans do not account for a significant amount of the loans made in the last couple of years and not many of them are expected to default as a result of adjustment. At times like this should call for telemarketed mortgage leads.
Moody’s Investor Service indicates that lease payment defaults by big-money tenants was the major cause for causing 37% of commercial loans to go into special servicing last year. It is worth mentioning that buildings in larger cities are usually not a greatly impacted by lease defaults while those in areas with weaker markets and less stable economies are more to the impact of tenant defaults. Moody’s suggests that buildings in areas with weaker economies that enter special servicing represent almost twice “the frequency that their total share of CMBS collateral would suggest.” Of the seven commercial sectors, five are in the highest performance category while Full-service hotels and suburban offices lag closely behind. Further, Moody’s indicates that, in the first quarter, limited-service hotels saw the largest improvement in performance among the seven commercial sectors.
LA and NY are in the leading the country in commercial real estate performance, and are the largest cities represented in mortgage-backed securities deals. The rating agency found that the commercial real estate score was down only one point from the end of 2006 to the first quarter in 2007. Trenton, San Antonio, Jacksonville, Las Vegas, and Detroit scored the worst in the first quarter of 2007. Here, the limited-service hotel sector sits comfortably in the highest performance category while full-service establishments are slightly behind. Frill-service hotels showed an increase of 6.3% compared to the first quarter of last year; the lowest revenue increase experienced in the last two years. Moody’s senior VP said that the baseline has not exceeded target since 2004. Limited-service hotel revenue exceeded baseline by 4.5%, a direct result of a supply shortfall and a reduction in demand. American home mortgage news. The suburban office scored the poorest with a mediocre score of 46. Moody’s suggests that there is a related mismatch of supply and demand. Further, there are some disproportionately low scoring markets skewing the data. The multifamily category, while still in the highest performance level, showed a slip to a score of 80. In the face of a downturn in the residential sector, commercial dealings are still running relatively strong. This is a review of "Commercial Sector Remains Strong Despite Housing Woes" By: Thangavelu, Poonkulali. Mortgage Servicing News, Aug2007, Vol. 11 Issue 7, p8-8, 1/3p
