Trepp Analyzes CRE Loan Defaults & Loss Rates: Serious Challenges Ahead

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To gauge the impacts of the COVID-19 disruption, Trepp applied an economic and real estate forecast scenario to a portfolio of 13,000 commercial real estate loans. The loans are from Trepp’s T-ALLR data set, which is comprised of balance sheet loans held by commercial banks.

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The economic downturn caused by COVID-19 and the efforts to contain it will trigger a new cycle of rising defaults and losses in the commercial real estate lending sector.

Trepp, a leading provider of information, analytics, and technology to the structured finance, commercial real estate, and banking markets, has released its latest report, “Analyzing CRE Loan Defaults & Loss Rates: Serious Challenges Ahead”. The full report can be downloaded here: https://info.trepp.com/analyzing-cre-loan-defaults-loss-rates-serious-challenges-ahead-pr.

To gauge the impacts of the COVID-19 disruption, Trepp applied an economic and real estate forecast scenario to a portfolio of 13,000 commercial real estate loans. The loans are from Trepp’s T-ALLR data set, which is comprised of balance sheet loans held by commercial banks. The loans used for this analysis are commercial mortgage loans, spanning a broad range of size, geography, and property type.

"The economic downturn caused by COVID-19 and the efforts to contain it will trigger a new cycle of rising defaults and losses in the commercial real estate lending sector," said Matthew Anderson, head researcher of this study and Trepp Managing Director. "In the main scenario presented in this report, the cumulative default rate across commercial mortgages overall will rise to 6.5%, up significantly from the current 0.5% default rate."

In March, Trepp released an original analysis estimating impacts from COVID-19 and the efforts to contain it. The impacts outlined in Trepp's updated report reflect upgraded assumptions regarding key model inputs, as well as new breakouts for retail subtypes, and more nuanced geographic applications of the assumptions regarding price and NOI growth.

The Price and NOI peak-to-trough forecasts have been updated and are less severe in the June forecasts than in the March forecasts. Trepp used year-to-date share price changes from the REIT market as a guide in setting the peak-to-trough price forecasts for the different real estate property types.

This analysis has broken the retail property type into three subtypes – Free Standing, Shopping Centers, Regional Mall – in order to apply Price and NOI growth vectors to each of the subtypes separately. It also captures geographic differences by scaling the Price and NOI growth vectors up or down at the state level, according to how that state’s unemployment rate has performed relative to the nation. Lastly, the report incorporates two alternative scenarios, to capture the effects of a stronger and faster rebound and of a potential second drop in values and NOI.

To see the full study and Trepp's results, download the report here: https://info.trepp.com/analyzing-cre-loan-defaults-loss-rates-serious-challenges-ahead-pr.

For daily commercial real estate and CMBS commentary, follow @TreppWire on Twitter.

About T-ALLR
Trepp’s Anonymized Loan Level Repository (T-ALLR) houses CRE and C&I data from large and mid-sized commercial banks. The T-ALLR Data Feed contains anonymized loan level and period level attribute and performance information on each loan. With 7+ years of history and new quarterly originations typically exceeding $7 billion for CRE and $9 billion for C&I, T-ALLR provides the breadth and depth necessary to gain insights into market activity, identify trends, and spot emerging pockets of risk and opportunity

About Trepp
Trepp, founded in 1979, is the leading provider of information, analytics, and technology to the structured finance, commercial real estate and banking markets. Trepp provides primary and secondary market participants with the web-based tools and insight they need to increase their operational efficiencies, information transparency, and investment performance. From its offices in New York, San Francisco, and London, Trepp serves its clients with products and services to support trading, research, risk management, surveillance, and portfolio management. Trepp is wholly owned by Daily Mail and General Trust (DMGT). For more information, visit http://www.Trepp.com

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Hayley Keen
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