MORNINGSTAR CREDIT RATINGS LLC
Consumer confidence wobbles
NEW YORK — Consumer confidence in the United States’
economy slipped this past September, according to the
After a slight increase in August, the index declined from
81.8 to 79.9 in September.
The percent of respondents who indicated they believe business conditions were “good” rose from 18. 7 percent to 19. 5
percent, while those indicating a belief that business conditions were “bad” fell from 24. 5 percent to 23. 9 percent.
The percentage of respondents indicating jobs were “
plentiful,” rose from 11. 3 percent to 11. 5 percent while those indicating jobs were difficult to get declined from 33. 3 percent to
32. 7 percent, a five-year low.
Durable goods orders increase
WASHINGTON, D.C. — New orders for durable goods increased this past July to August, pushed by fresh demand for transportation equipment, according to the U.S.
Durable goods orders increased 0.1 percent to $224.9 billion, slightly ahead of expectations. The consensus forecast
called for new durable goods orders to remain flat.
New orders, up for four of the past five months, returned to
the recent trend after an 8.1 percent decrease in July.
The U.S. Census Bureau said orders for big-ticket transportation items — ships, trucks, planes and railroad cars —
increased 0.7 percent, or by $500 million, to $67.9 billion
with a noteworthy gain in motor vehicles and parts, which
rose by $1.1 billion.
Durable goods orders: november 27
Second-quarter GDP firms at 2. 5 percent
WASHINGTON, D.C. — The U.S. economy grew at an annual
rate of 2. 5 percent in this past second quarter, the Commerce
Department reports, confirming a previous estimate.
Corporate profits in the second quarter rose by $66.8 billion,
not by $78.3 billion as estimated in a report released in late
With new data available, however, the GDP estimate firmed,
posting an improvement over the annual rate of the economy’s quarter-to-quarter growth in the first quarter, which was
Personal spending increased 1.8 percent in the second quarter after rising 2. 3 percent in the first. Spending on durable
goods was up 6. 2 percent after a 5. 8 percent increase in the
first quarter. Spending on non-durable goods, which outweighs durable goods purchases, rose 1.6 percent compared
to 2. 7 percent in the first quarter. Spending on services was
more consistent, rising 1.2 percent after rising 1.5 percent in
the first quarter.
Retail sales up for fifth consecutive month
WASHINGTON, D.C. — Retail and food-service sales increased
for the fifth consecutive month this past August, according to
the U.S. Census Bureau.
For the second straight month, sales increased 0.2 percent,
falling short of expectations. Economists had expected a
0.4 percent rise. On a seasonally adjusted basis, sales rose to
$426.6 billion in the month, which is 4. 7 percent higher than
The bureau said sales excluding automobiles rose 0.1 percent month to month, a 3. 3 percent climb from August 2012.
Motor-vehicle sales rose 0.9 percent month to month and
10. 9 percent from 12 months prior.
In another category that has broad implications, sales of
building materials and garden supplies dropped 0.9 percent
from July to August, data that reflects slowing gains in prices
for new residential construction.
Retail sales: november 14
In the Past Month Q A &
BY RANIA OTEIF Y
commercial mor Tgage-bacKed securi Ties (cmbs) were
hi T hard by The recession.
But high issuances and low delinquencies have marked this year’s recovery in the CMBS market.
Will this recovery be sustainable for at least the foreseeable future? To get the answer, we spoke
with Morningstar Credit Rating LLC’s Frank Innaurato, managing director for CMBS new issue,
and Ken Cheng, managing director for CMBS surveillance.
This past August, CMBS delinquencies reached their lowest level since 2010.
Is a recovery finally taking hold?
innaurato: We are on a path to recovery, and that recovery definitely is taking hold in the
CMBS market. There are a couple of drivers behind that recovery. One: The active workouts
that are ongoing by special servicers in the CMBS market. Two: The ongoing lending that is
occurring by banks in the market, [which] is leading to new securitizations. Three: The maintaining of interest-rate levels that is supporting the overall stability of the market, [which] has
allowed for loans to refinance in other avenues by way of commercial banks throughout the
markets in the United States and through international avenues, as well. So we have seen a
gradual movement over the last trailing 12 months — if not in the last two years — where both
the delinquent unpaid balance and percentage continue to go down on a monthly basis.
What property types are leading the recovery?
innaurato: There are multiple property types. The primary ones that are driving the recovery
are office, retail and multifamily. Multifamily has been performing very well and has been a
leading driver of the lending environment. We have been seeing a large amount of the multi-family property type come across our desks by way of lending for new issuance. On the office
side, we’ve seen more recently in the last six to 12 months, [including] a larger drop in the
overall delinquency rate for that property type in particular, as well as a large amount of workouts for those assets, whereas concern continues to surround retail in general as a property
type due to macroeconomic conditions. The overall retail delinquency rate as a whole has
continued to drop dramatically in the trailing 12 months.
Will the trend of declining delinquencies continue in the coming year?
innaurato: There will be a plateau effect at some point. Our conclusion is that we will continue
to see delinquencies fall into 2014 as assets continue to be worked out, but this will be mitigated somewhat by the wave of loans requiring refinance at maturity. We expect, however, that
[there will] continue to be a vibrant market for new-issuance transactions, and this will assist
with refinance activity. There is a numerator-denominator effect that impacts the overall delinquency rate as a whole. As less delinquencies occur on a monthly basis, yet more new issuance
enters the market for CMBS, the delinquency percentage will continue to decline, as well as the
overall delinquent dollar amount due to the active workout negotiations by special servicers
as a whole. The overall trend of delinquencies will continue for the remainder of this year and
into 2014. The X factor will be if interest rates flatten or increase somewhat into 2014. But our
overall expectation is that is not what is coming in the near future.
By some expectations, total CMBS issuances may hit $65 billion this year, an
increase from about $48 billion in 2012. What drives this increase?
cheng: I think we are going to exceed the $65 billion number. What I am hearing now is somewhere closer to $75 billion to $85 billion of issuance. The $65 billion number is something that
the marketplace consensus had at the beginning of the year. I think we will well exceed those
expectations. There were loans that are reaching maturity this year, so there is more demand
for refinancing. Also, even though [spreads] widened a bit during the summer, they rallied and
came back, providing competitive funding for borrowers. There is a lot of demand for CMBS
right now. Relative to other fixed-income products, it provides attractive dollar value.
Recently the Dodd–Frank Wall Street Reform and Consumer Protection Act’s provi-
sion related to risk retention and the premium capture cash reserve account was
eliminated in a re-proposal. Will this help increase future CMBS issuance?
cheng: This certainly eliminates one of the concerns. It is not a question of whether or not
[its] removal will increase issuance. That is not what it is going to do. The removal is going to
lessen the chance that it is going to impact the new-issuance volume negatively. This removes
a disincentive for putting these deals together.
innaurato: Morningstar has not taken any public position on the issue at this time, but overall, any time regulatory uncertainty such as this can be removed, we’d argue that it would
help parties that are waiting on the sidelines to re-enter the market. While this ruling was
particularly burdensome, we do think that it would increase issuance in some form or fashion.
However, our view is generally favorable that spreads, wherever they may be, will remain a
large driver for issuance on a go-for ward basis.
Rania Oteify is an associate editor at Scotsman Guide. Reach her at (800) 297-6061 or firstname.lastname@example.org.