JP Morgan’s $716.3 million CMBS sale last week contains the strong underwriting reminiscent of years past, but whether this will develop into a pattern as the market sees more transactions remains to be seen, according to the latest Fitch Ratings US CMBC newsletter.
Stronger issuer underwriting practices incorporated in the deal include in place cash flow, marked-to-market prices where applicable and no reliance on pro-forma income. Borrowers are also retaining material equity in the properties, with contributions ranging between 25 percent to 50 percent based on purchase prices.
“If and when underwriting levels do deteriorate, expect to see Fitch raise their credit enhancement levels,” said Fitch group managing director and U.S. CMBS group head Huxley Somerville.
In an interview with PERE, Racebrook Capital co-founder and chief executive officer John Cuticelli called the CMBS market, “the future of the workout and real estate business.”
Earlier this month, CMBS data provider Trepp reported that US CMBS delinquency had hit 8.4 percent – up from just 2.8 percent one year ago.