7 CMBS Classes of BACM 2002 downgraded
Global rating agency Moody's has downgraded the ratings of seven classes and affirmed three classes of Banc of America Commercial Mortgage Pass-Through Certificates, Series 2002-PB2. The downgrades of the six principal and interest bonds are due to an increase in expected losses from specially serviced and troubled loans and interest shortfalls.
Moody's rating action reflects a base expected loss of 69.2% of the current pooled balance compared to 39.1% at last review. Moody's base expected loss plus realized losses is now 11.7% of the original pooled balance compared to 10.6% at last review.
Moody's analysis reflects a forward-looking view of the likely range of collateral performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside an acceptable range of the key parameters may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated during the current review. Even so, deviation from the expected range will not necessarily result in a rating action. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortization and loan payoffs or a decline in subordination due to realized losses.
Primary sources of assumption uncertainty are the extent of growth in the current macroeconomic environment given the weak pace of recovery and commercial real estate property markets. Commercial real estate property values are continuing to move in a modestly positive direction along with a rise in investment activity and stabilization in core property type performance.
Limited new construction and moderate job growth have aided this improvement. However, a consistent upward trend will not be evident until the volume of investment activity steadily increases for a significant period, non-performing properties are cleared from the pipeline, and fears of a Euro area recession are abated.
The hotel sector is performing strongly with nine straight quarters of growth and the multifamily sector continues to show increases in demand with a growing renter base and declining home ownership.
Recovery in the office sector continues at a measured pace with minimal additions to supply. However, office demand is closely tied to employment, where growth remains slow and employers are considering decreases in the leased space per employee. Also, primary urban markets are outperforming secondary suburban markets. Performance in the retail sector continues to be mixed with retail rents declining for the past four years, weak demand for new space and lackluster sales driven by internet sales growth. Across all property sectors, the availability of debt capital continues to improve with robust securitization activity of commercial real estate loans supported by a monetary policy of low interest rates.