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CMBS Delinquency Rate Expected to Stay at Post-Crisis Lows, but Retail Remains a Concern

CMBS delinquencies have fallen to post-crisis lows as the strong flow of originations that kicked off 2018 and continued through June outpaces the number of problem loans.

The delinquency rate hit a post-crisis low of 2.24% in April and is down 90 basis points from a year ago, Morningstar Credit Ratings said in its CMBS third-quarter outlook published earlier this month. And the investment research and management company does not expect much to change in the near term, saying it believes the rate will hold below 2.5% for the rest of the year.

“Delinquencies from deals issued from 2010 through 2018 represent just 0.3% of the CMBS universe, while delinquent pre-crisis loans account for 1.9%,” it said.

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Most of the CMBS originations this year, according to Morningstar, appear to be single-asset, single-borrower CMBS deals. Office loans, including on many trophy properties, it noted, accounted for about 29% of volume in the first half.

Yet, while delinquencies seem to be in check, Morningstar said the ongoing problems in retail are likely to increase the number of watchlist loans as continued bankruptcies further increase vacancy rates. Citing Bon-Ton, which began liquidation sales in April, and Toys “R” Us, which closed its last U.S. store on June 29, Morningstar said it also is worried about retail anchors such as Macy’s, JCPenney and Sears/Kmart, which are continuing to shutter shops.

Nevertheless, Morningstar expects the number of mall defaults to decline this year because they tend to default at maturity and fewer are scheduled to mature in the next few years: “As long as cash flow remains above break-even on these assets, mall owners have little incentive to hand properties back to their respective trusts prior to loan maturity and will collect cash flow until then,” Morningstar’s Steve Jellinek wrote in the report.

He attributes the growing appetite for CMBS to “the ease of re-underwriting the collateral, better credit enhancement and the higher-quality assets backing the dealsת” but also says it is being driven by borrowers looking to lock in low rates as the Fed remains in a tightening trend.

“Meanwhile, a growing number of yield-hungry investors tied to large projects too capital intensive to finance via other lending vehicles will likely turn to CMBS,” the report concluded.

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Jeff Hendren

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Jeff Hendren is President of CrediFi and brings to the company more than 20 years of experience in fintech, helping C-level executives and business leaders make data and technology decisions. As CrediFi’s president, he is responsible for executing the mission, vision and strategy for the business, with a focus on sales, marketing, business development and client success. Prior to CrediFi, Jeff was Chief Commercial Officer of Quovo, a data science platform that intelligently aggregates and analyzes financial account data, and CEO of Kurtosys, an enterprise content management platform for financial services companies.  

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Alex Veksler

Head of Content

Alex Veksler has 16 years of finance, data analysis and project management experience. He is a former vice president at Morgan Stanley, where he worked on product control of equity and fixed-income derivatives products as well as various projects involving finance and technology, such as revamping risk attribution and balance-sheet systems for profits and losses. Alex has previously worked at hedge funds, most recently as a director at Exigent Capital. He has a bachelor’s in computer science from Yeshiva University and an MBA from New York University.

Ely Razin

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Ely Razin founded CrediFi in 2014 with Battery Ventures. A rare combination of seasoned corporate executive and technology entrepreneur, Ely previously served as global head of board governance for Thomson Reuters Accelus and head of business law for Thomson Reuters, after the software company he founded was acquired in 2004. The company, Expert Ease Software, developed AI-based software that automatically summarizes key deal terms for transactions in fields including capital markets, M&A and real estate. Ely began his career as a corporate and securities lawyer, and holds an LLB and MBA from York University.

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Frank Muhlon oversees CredifX, the commercial real estate financing marketplace that mines the CrediFi database at its core. Prior to joining CrediFi, Frank served as vice president of Northeast region business operations for online CRE property trading platform Ten-X, which has closed over $40 billion in transactions since its inception. He has also held key positions at Orix USA/Houlihan Lokey, Silverstein Properties and Trammell Crow Company. Frank received his master’s degree in real estate finance from New York University and his bachelor’s in finance from Rutgers University.

Charles Mctiernan

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Charles Mctiernan comes to CrediFi from Ned Davis Research Group and Roubini Global Economics, where he was the global head of sales. He also spent more than 10 years at Reuters America Holdings, where he held a number of senior sales leadership roles, including head of solutions sales and head of global accounts. Charles, who received his bachelor’s in economics from East Carolina University, has more than 25 years of experience in technology, data and research sales.

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Amichai Levy is the former VP of R&D at Israeli high-tech firm Payoneer, where he developed its signature cross-border payment platform and integrated it with existing bank technology. In his prior role at Ness Technologies, Amichai was a key player in developing an electronic case filing system for Israel’s courts. He has over 20 years of experience in software engineering.

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David Fajgman brings over 14 years of financial and managerial experience to CrediFi. Prior to joining the CrediFi team, he served as finance director of Bioness Neuromodulation Ltd., which develops and manufactures medical devices involved in neurological rehabilitation. He has previously worked in multiple finance roles at Thomson Reuters and as an accounting and consulting manager at Ernst & Young, where he was responsible for a wide range of clients, including companies listed on the Nasdaq and privately held high-tech companies. David is an Israel-licensed certified public accountant and has a bachelor’s degree in business and accounting.

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Liat Bar David has over nine years of human resources experience, primarily focused on the high-tech industry. She is a former HR business partner at semiconductor solutions provider Broadcom, where she was responsible for onboarding processes, benefits, policies, training and development, performance management and employee retention. Liat holds a bachelor’s in communication and human services and a master’s in human resources and services, both from the University of Haifa.