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Stock Strategist

CMBS: Fundamentals Sound Overall With a Few Exceptions

We're watching the retail space following bankruptcy filings by Sports Authority and Hancock Fabrics, as well as markets with exposure to the oil and gas industries.

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  • Commercial real estate fundamentals remain on steady footing across all property types, with some local market exceptions.
  • Most CMBS loans originated prior to the market’s peak of 2006-07 have been able to refinance, and the delinquency rate is at a seven-year low.
  • New issuance of commercial mortgage-backed securities in 2016 is poised to fall well short of 2015 issuance. Hurt by volatility in global markets and a widening gap between the yields that investors demand and the yields that issuers can pay, CMBS new issuance had a tepid first quarter.
  • New risk-retention regulations, which take effect in December 2016, could damp issuance.

Morningstar Perspective
While real estate fundamentals depend on conditions in the local markets, Morningstar believes that overall, commercial real estate fundamentals remain sound. Nationally, the U.S. unemployment rate held steady at 4.9% in February and payrolls expanded by an average of 228,000 jobs over the past three months, according to the Bureau of Labor Statistics.

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Steve Jellinek does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.