EMEA CMBS face increased downgrade risk-Moody's

Thu Feb 3, 2011 11:38am GMT

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* Non-prime EMEA CMBS at greater risk of downgrades-Moody's

* Availability of financing to remain weak for next two yrs

* Concern of double dip in commercial property values

By Daryl Loo

LONDON, Feb 3 (Reuters) - Commercial mortgage-backed securities (CMBS) for non-prime properties in EMEA, especially the UK, are at higher risks of downgrades this year as weak credit conditions drag on longer than expected, Moody's said.

CMBS secured by poorer-quality properties that need to be refinanced in 2012 and 2013 face the greatest downgrade risk, with the availability of financing not rising meaningfully in the next two years, the ratings agency said on Thursday.

The increased risks come from a slowdown in economic recovery, the end of government stimulus spending, and a shortage of available capital at banks, it said in a report. [ID:nLDE70H1ZK] [ID:nLDE70I09V] [ID:nLDE70H1C4] [ID:nLDE6B216B]

"We are increasingly concerned about these downside risks because of recent developments that could hurt the wider CRE markets in a number of countries," said Moody's senior analyst Oliver Moldenhauer.

The bulk of CMBS transactions in the Europe, Middle East and Africa (EMEA) region are secured on commercial properties in the UK, Germany, and France, while a minority are in Italy, Spain, South Africa, and the Middle East, he told Reuters.

Property consultants DTZ DTZ.L has estimated that Europe faces a real estate debt funding gap -- the difference between debt balances and available refinancing -- of about $126 billion over 2011-2013, the highest amount worldwide. [ID:nSGE6AM00F]

In the UK, Jones Lang LaSalle (JLL.N) said Bank of England data showed bank lending to real estate fell by 16 billion pounds ($25.9 billion) between September and December 2010, the largest quarterly drop since records began in 1987.

Moody's, which earlier expected financing to improve from 2013, said its main concern was a double-dip scenario in which commercial property values would decrease again, after most markets staged a tentative recovery in 2010.

For instance, austerity measures across Europe such as public spending cuts and tax rises will likely hurt employment and consumer spending this year, which could in turn hit the commercial property's recovery, Moody's said.

"This would have negative implications for the investment markets, banks, the lending markets and therefore the refinancing prospects of securitised loans that mature in the coming years," Moldenhauer said. (Editing by Karen Foster and Andrew Macdonald) ($1=.6166 Pound) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)

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