LONDON Moody's Investor Service said on Monday it was "sceptical" property markets across Europe, Middle East and Africa were fully on the front-foot after a two-year slump, despite signs of rising prices in some in-demand regions.
Fragile occupational demand and adverse tenant performance continues to threaten commercial mortgage-backed bonds (CMBS) secured on real estate assets in the region, the ratings agency warned in its latest Surveillance Report for the sector.
"(We) anticipate further value declines until 2010 in all EMEA CMBS markets", said Christian Aufsatz, a Moody's senior vice president and co-author of the report.
Moody's said declining occupancy levels and increasing rental arrears had triggered cash flow problems for a growing number of loans, sparking a rise in defaults as a result of interest or debt service cover covenant requirements.
Over the coming quarters, Moody's said payment defaults were set to rise, as property cash flows weakened further.
Even if commercial real estate lending and investment markets continued to rally, Moody's said most commercial real estate loans would be highly levered at maturity unless values recovered substantially, which it did not expect to happen in the near- to medium-term.
The rate at which defaulted loans were moved into special servicing also rose in the third quarter, prompting a high level of rating actions during within EMEA CMBS, Moody's said.
During the third quarter, the agency downgraded a total of 84 classes of notes in 37 of the 196 transactions it monitors.
The majority of the rating actions comprised multiple-notch downgrades, resulting from the adjustment of Moody's forward-looking EMEA CMBS central scenarios.
At end-September, a total of 67 classes of notes remained on review -- 66 classes of notes in 31 transactions remained on review for possible downgrade and one class remained on review with direction uncertain.
(Reporting by Sinead Cruise; Editing by Andrew Macdonald)
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