Better rental, but lower capital growth
The exposure of outstanding European CMBS programme loans to refinance risk is something we have highlighted for some time (European CMBS refinance risk Part I: storing up trouble for the future; R. Fox et al, Jun 15 2006), and that risk has hardly decreased, with €35 billion of debt now due to be refinanced in the period 2011-13. And while in general coverage ratios remain healthy, increasing issuance volumes mean that the sheer number of loans now securitized implies greater exposure to event risk over the term, a fact witnessed by the fact that ratings performance – historically positive in Europe due to favourable payment structures in the light of heavy prepayments – has seen some negative trends during early 2007.
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