The Positive Effect of 2003

Source: Standard & Poor’s,, Larry Kay, 212-438-2504

Source: Standard & Poor’s,, Larry Kay, 212-438-2504

In 2013, about 65 percent of the year’s maturities will be from the 2003 vintage year. We expect that the 2003 vintage-year maturities will benefit from loan amortization, property appreciation and the positive spread on 10-year Treasury rates, which averaged about 4 percent in 2003. As a result, the 2003-vintage maturities will have a much more dramatic effect on this year’s maturity and delinquency performance. With our expectation that 2013 should be a good year for loan maturity payoffs, it should also be positive for CMBS delinquencies, including the underlying property-type delinquency rates and amounts.

Fundamentals in the industrial sector are in recovery. One of the key positive drivers for demand has been the need for warehouse space related to e-commerce sales. We believe this trend will continue to be positive for CMBS industrial collateral performance and delinquencies. But although e-commerce may be good for bricks-and-mortar industrial, it is not boding as well for retail space. We believe that e-commerce will continue to have an increasingly negative impact on the retail bricks-and-mortar segment as more shoppers move online and utilize mobile shopping.

It is our view that office collateral will not start to see any meaningful net operating income growth until 2015, when leases signed at the trough in 2010 start to benefit from rollover to higher rents. Corporate restacking by making offices smaller and more efficient, along with reductions in square footage per office worker, could curb demand for office space.

—Larry Kay is a director at Standard & Poor’s.