Moody’s downgrades CMBS class of FULB 1997-C2
Global rating agency Moody’s downgraded the rating of one class of First Union-Lehman Brothers Commercial Mortgage Trust II, Commercial Mortgage Pass-Through Certificates, Series 1997C2. The downgrade of Class IO, the interest-only tranche, is due to the decreased credit quality of its referenced classes due to the paydowns of highly rated classes.
The performance expectations for a given variable indicate Moody’s forwardlooking view of the likely range of performance over the medium term. From time to time, Moody’s may, if warranted, change these expectations. Performance that falls outside the given range may indicate that the collateral’s credit quality is stronger or weaker than Moody’s had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not exclusively, the performance metrics.
Primary sources of assumption uncertainty are the extent of growth in the cur- rent 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 declin- ing 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.
Moody’s central global macroeconomic scenario calls for US GDP growth for 2013 that is likely to remain close to 2% as the greater impetus from the US private sector is likely to broadly offset the drag on activity from more restrictive fiscal policy. Thereafter, we expect the US economy to expand at a somewhat faster pace than is likely this year, closer to its long-run average pace of growth. Risks to our forecasts remain skewed to the downside despite recent positive developments. Moody’s believes that the three most immediate risks are: i) the risk of a deeper than currently expected recession in the euro area accompanied by deeper credit contraction, potentially triggered by a further intensification of the sovereign debt crisis; ii) slower-thanexpected recovery in major emerging markets following the recent slowdown; and iii) an escalation of geopolitical tensions, resulting in adverse economic developments.