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CMBS 2.0 Weathers Pandemic Storm
COVID’s onset in March 2020 marked the start of the first major credit dislocation since the global financial crisis (GFC) beginning in 2008. Despite major challenges stemming from this disruption, commercial real estate transaction performance—including conduit and single-borrower CMBS and collateralized loan obligation transactions–has held up reasonably well, with lessons learned from the GFC helping to mitigate COVID’s credit impact. So says Kroll Bond Rating Agency (KBRA) in a new report.
In spite of challenges that lodging and retail presented during the pandemic, KBRA’s CRE ratings from March 2020 through February 2022 exhibited an investment grade ratings stability ratio of 94.2%, while at the AAA category it was 99.2%. “This is in stark contrast to legacy downgrades that resulted from the GFC,” according to KBRA.
“While we will not speculate on where the next crisis will come from, it is fair to say that clouds are gathering on the horizon,” the report states. “Should recessionary forces arise, this will inevitably contribute to rating volatility; however, CMBS 2.0 deals are better positioned than 1.0 to weather future storms.”
- ◦Financing
