- Strong corrections in commercial real estate markets worldwide. "It was the sharp corrections in housing markets that triggered the financial and economic crisis. The vacancy rates of commercial real estate also rose, with rents declining markedly. At the same time, initial yields climbed strongly in some cases. In many locations, the trough has been passed in the last six months."
- Loan defaults up sharply in the US. "Since 2006, the default rate on commercial real estate loans has risen from about 1% to roughly 9%. Default rates on commercial mortgage-backed securities (CMBS) have increased from 1% in 2008 to currently around 7% (in the US)."
- Securitisation market with special risks. "The CMBS market is a particular cause for concern, not only because there are major uncertainties about the size of the total market and maturity structures, but also because the atomistic investor structure makes a restructuring of debt via maturity extension much more difficult."
- Risks concentrated on few countries. "The strongest repercussions for the economy and financial services providers are likely to be seen in Ireland and Spain and, to a somewhat lesser extent, in the US and the UK. Germany has a worryingly large share of debt-financed, low-quality real estate with high loan-to-value (LTV) ratios."
- Major impact on overall economy, but less than during the housing market crisis. "First, the residential real estate markets are larger than the commercial real estate markets; second, primarily high-quality commercial real estate was securitised; and third, governments have taken precautions in the meantime to be able to handle further tensions."
- Adjustment strategies: There is no “ideal” path. "The objective is to reduce the share of debt capital in the real estate market, e.g. via stock market-listed equity vehicles. The revival of the securitisation market would be desirable but requires confidence-building measures."
DeutscheBank International Topics 20100706
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