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CMBS: Better rental, but lower capital growth

by Hans Vrensen, securitization research, Barclays Capital.

Tight to prime
Refinance risk

Hans Vrensen, securitization research, Barclays Capital.

Vrensen: Increased refinancing risk after 2008

The BEC Prop Index is an indicator that measures the impact of property fundamentals on European CMBS, by considering the outlook for and exposure to each property type across the main European countries.

Our updated BEC Prop Index for April 2007 comes out lower than our original index from November 2006. However, based on our sub-indices, we expect continued (and improved) rental income growth until 2011, but negative (and worsening) capital value growth after 2008.

As a result, the overall index is still projected to be positive over the five-year forecast period, albeit flat over 2008-11. The 2007-08 CMBS vintage should experience a capital value decline of over 10% by 2011. Also, we expect continued rental income growth to limit CMBS loan defaults until 2011. However, after 2008, we forecast increasing refinancing risk as capital growth turns negative.

BEC Prop index falls

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