CRE Loan Values Continue Rise
Carl Gaines March 30, 2012, 9 a.m.
According to loan sale advisor DebtX, commercial real estate loan sale values rose in February, continuing an upward trend seen since 2011.
As of the end of February the aggregate value of CMBS-collateralized loans priced by the firm had climbed to 86.9 percent, up from 86.4 percent at the end of the month previous. Looking back a full year to the end of February 2011, those loan values were at 79.9 percent.
DebtX CEO Kingsley Greenland told The Commercial Observer that the rising prices may signal improving commercial real estate fundamentals.
“In this case, from January to February, I think it’s a good thing,” Mr. Greenland said. “It indicates strengthening collateral value, or improving fundamental real estate value.”
As the loan prices have gone higher, credit spreads have tightened—a trend analysts anticipate continuing. David Sekera, a senior securities analyst at Morningstar, wrote in the firm’s recent Quarter-End Insights, that it anticipates “30 basis points of credit spread tightening.”
As for any link between the upward movement in loan values and actions taken by the government during the economic crisis, Mr. Greenland said that this isn’t necessarily the case.
“Many times we may see the gain as attributable simply because of what’s going on at the Fed—quantitative easing, Operation Twist, whatever you want to call it,” he said. “In this case it seems to be more the fundamentals of the real estate.”
The pool of 50,880 commercial real estate loans that DebtX priced last month had an aggregate principal balance of $611.7 billion, the firm said. A January 2012 pool of 51,399 commercial real estate loans, meanwhile, had an aggregate principal balance of $616.1 billion.