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Latest CMBS Data Show More Secondary Markets Doing Better Than Some Larger Markets

NYC, Seattle, Baltimore Top List of Least Distressed CRE Markets; Las Vegas, Phoenix Have the Most
September 1, 2010
The summer has brought little relief to metro areas experiencing the most distress on loans held in the commercial mortgage-backed securities (CMBS) universe. However, two markets have seen a noted improvement in their respective levels of CMBS loan distress that has moved them up into the five "least-stressed" markets in the country, according to an analysis of CMBS loan information from Investcap Advisors LLC and QuantumRisk LLC.

Among the 50 markets in the country that have the most amount of properties backing CMBS-held loans, the usual suspects -- Las Vegas, Phoenix, Orlando, Atlanta and Detroit -- continue to rank as the five markets with the highest overall probabilities of default, just as they did at the end of May. According to new numbers from Investcap Advisors LLC and QuantumRisk, all five markets show probability of default ratios of 11% to 15%, and potential loss severities on loans of 10% to 14%.

There was a bit of a shake-up at the top of the 50-largest markets though. New York moved into top spot as the market with the lowest level of distress CMBS loans in the country, just barely surpassing Seattle. Both markets showed probability of default ratios and loss severities on loans of less than 2%. New York was second at the end of May and knocked Portland down to the fourth position, which showed a probability of default ratio of 2.3% and a loss severity of 2.2%. Seattle moved up to second from fifth.

Moving into the top five at the end of July were Baltimore in the third spot and Los Angeles in the fifth. Baltimore showed a probability of default ratio of 2.25% and a loss severity of 2.19%; Los Angeles was 2.56% and 2.48% respectively.

Falling out of the top five were San Jose and San Francisco-Oakland. San Jose moved to the sixth spot with a probability of default ratio of 2.62% and a loss severity of 2.35%; San Francisco dropped to eighth at 3.16% and 2.95% respectively. Orange County, CA, came in between the two.

When it came to the most distressed markets by various property types, there is little variation among which markets have fallen to the bottom of the pile. Las Vegas, Phoenix and Atlanta were at the bottom in four out of the following five property types: industrial, hotels, multifamily, office and retail.

When it came to the least stressed markets by various property types, San Diego and New York came in as the office markets with the lowest probabilities of default and loss severities, each at less than 2%. For industrial properties each of the following five markets came in with less than 1% for probabilities of default and loss severities: Ventura, San Diego, Orange County, and Los Angeles, all in California; and Washington, DC. Remarkably for retail property types, the Baltimore area market is showing 0% probability for default or loss severity at the end of July.

Investcap Advisors provides surveillance data on the CMBS market and QuantumRisk is a registered investment advisor in Colorado. The two firms analyze more than 85,000 properties backing more than 52,000 loans held in CMBS deals each month and develop a probability of default ratio and loss severity calculation for more than 400 U.S. markets.

Download this story and other national news in the Watch List Newsletter,, a weekly pdf that includes leads of distressed properties and loans and other news items not found on the CoStar Group web news pages. Sign up for the Watch List E-Mail Alert. It's the quickest way to link directly to the news and leads you want. Just e-mail your name, title, company, company business, city, state, and e-mail address to Mark Heschmeyer

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