Find the answers by downloading the presentation and watching the full replay of Scope’s CRE webinar.
 
Key takeaways:
 
CRE loans/CMBS

• First cracks appearing in CMBS/CRE loans as seen in maturity extensions and defaults. Downgrades piling up for stressed construction loans and low-cashflow-yielding CRE loans.
• 2017-18 vintage securitised CRE loans struggling to refinance owing to poor planning, tighter underwriting standards and lenders' doubts about terminal value.
• Lender concerns elevated for properties with poor pricing power to pass on inflation and those facing obsolescence risk (shopping centres, secondary offices).
• Expect performance dislocation between property types, ESG-prime assets and non-prime stranded assets.
• CMBS cashflow generation should remain strong for most property types although values will continue to be tested.
• Refinancing risk and forced maturity extensions for CRE loans will remain high over the next 18 months. Banks will focus on refinancing existing customers, retrenching from some pockets of the market. The debt funding gap will continue to increase, creating opportunities for alternative lenders to increase their footprint. Valuations won’t stabilise until interest rates do.

REITs

• REITs trading at significant discounts to appraised asset values imply cap rates materially higher than what private markets are pricing in.
• Companies that entered 2022 with high leverage and large exposure to the bond market face higher refi risk.
• REITs generally focus on deleveraging (asset sales, cuts in investment and dividends, bond buybacks) to cope with the impact of rising yields on property market values.
• Loan margins for banks’ existing clients rising only slightly – for now.
• Rental growth will accelerate in 2023 (though cool from 2024), relieving some pressure on interest coverage and widening yields. Further negative rating migration is likely.