While the recovery of US office markets has been uneven, improving fundamentals are having positive impacts on CMBS office loans, according to a new report from data firm Trepp.
The dollar volume of maturing legacy CMBS office loans between now and 2020 is higher than any other property type, at $105.6bn, representing 30% of the $354bn total.
That wave of maturities is helping to drive new CMBS origination, and loss rates are much lower than they have been in the past, according to the report.
Office CMBS origination increased steadily from $1.7bn in 2010 to $22.4bn in 2014; and for the first half of 2015, originations totaling $10.3bn were 13% ahead of 2014 levels.
Meanwhile, more than 86% of office CMBS loans disposed in the first six months of 2015 paid off without a loss; and losses dropped from a peak of 11.5% in 2013 to 4.5% during the first half of 2015.
In addition, total office CMBS delinquencies have declined from a peak of about 10.5% in the summer of 2012 to 5.9% as of June 2015.
“Improving property fundamentals, paired with declining delinquency and loss rates, will help the CMBS market work through the upcoming wave of maturities,” Trepp analysts wrote.
“As the vast majority of maturing loans are backed by office properties, the more time borrowers have until maturity, the more they can benefit from the recovering market conditions that make refinancing easier — so long as interest rates don’t markedly increase.”
Despite the marked improvement, it would still be “somewhat misrepresentative… to say that office CMBS has strengthened across the board” because large coastal areas — New York City, San Francisco, etc. — have far outperformed second-tier markets.