A robust recovery of the commercial mortgage-backed securities (CMBS) market in Europe, the Middle East and Africa (EMEA) is unlikely in 2010, said Moody's Investors Service in its 2009 Review & 2010 Outlook report for the asset class. The rating agency predicts that throughout 2010 there will be only sporadic issuance in the market, estimated to be around 15 billion euros. Its outlook for the sector remains Negative. In the report, Moody's notes that primary issuance increased in 2009 compared to 2008, although it remained low overall. “Most of the issuance in 2009 stemmed from retained transactions,” said Raphael Smadja, a Moody's associate analyst and co-author of the report. “However, three credit-tenant-lease transactions were sold to investors with considerable success.” The performance of outstanding EMEA CMBS is likely to continue to face pressure in 2010. Moody's expects that downgrades will continue to outweigh upgrades in 2010, although the total number of rating actions is likely to be considerably smaller than in 2009 and mainly driven by idiosyncratic loan and transaction performance. Moody's does not expect systemic rating actions in 2010 as witnessed in 2009. Although the outlook for EMEA commercial real estate (CRE) improved overall towards the end of 2009, Moody's still believes that CRE loans securitized in CMBS bonds will perform poorly in 2010 and beyond . However, Moody's remains skeptical about a sustainable CRE recovery in the short-to medium-term, especially taking into account the only sluggish economic recovery and its impact on occupational markets,” said Jeroen Heijdeman, a Moody's analyst and co-author of the report. “The poor performance of loans in EMEA CMBS is expected to continue, in particular because of refinancing risk. Even with a moderate CRE value recovery, CMBS loans will still feature very high loan-to-value ratios at maturity and will therefore be difficult to refinance.” Moody's believes the capital markets will still play an important role in the financing of commercial real estate. “Beyond 2010, it is possible that a new generation of CMBS deals will emerge in EMEA,” said Oliver Schmitt, Moody's assistant vice-president and co-author of the report. “They will likely contain lower leverage loans and will try to avoid the shortcomings that have been revealed in outstanding transactions.”
