Monday, May 25, 2009

Loan Term Lengths

Based on a conversation (see comments) earlier today, it became apparent that there is still a misconception regarding loan terms within CMBS. In the fixed-rate CMBS universe, loans are primarily 10-year loans, with a relatively small portion made up of 5-year and 7-year loans. In the floating-rate universe, loans are primarily (83% of the market) 2 or 3-year loans, with up to 3, one-year extensions.

According to the research piece from BOA titled "More Cowbell", 10-year loans are 74.6% of the Conduit universe, 5-year loans account for 10.5%, 7-year loans account for 6.4% (all by balance).

Surprising to me, was that the percentage of 5- and 7-year loans peaked in 2005 (at over 40%!), and subsided some in 2006 and 2007 registering in the mid 20% range according to Morgan Stanley (chart is from CMSA's 103 presentation).

So, where are all the loans coming from that mature between now and 2012 - if the CMBS universe is not saturated in short-term loans? Regional Banks carry most of the burden, as you can see from Deutsche Bank's chart to the right.

We're going to leave maturity concerns behind next week and focus on partial IOs. We've talked some about them because they are going to be a bigger storm than maturities will be in the CMBS universe. These are loans that were written with an initial Interest Only period, and then moved to a principal and interest payment after a period of a few years. The number of loans that no longer cover after the roll (using recent financials) is astonishing, but no more astonishing the sheer percentage of the market that is comprised of Partial IOs...

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