Fitch expects most property sectors to be relatively stable. However, some sub-sectors may suffer from oversupply. The percentage of hotels contributed to recent deals has been on the decline. While Fitch has a stable outlook on the sector, we believe that current revenues could be unsustainable if the supply of rooms continues to grow. In some cities, such as
Other sub-sectors may face contraction. We expect class A offices in urban areas to improve while class B offices in suburbs will continue to struggle. And we believe lease renewals in the
In our view, these challenges to asset performance make the subtle differences between some issuers more important for bondholders to understand. The majority of originators we analyzed had a similar mix of property type concentrations. On average, retail was the highest sector concentration at 32.29%.
However, some originator's property type concentrations were much higher than the average. For example UBS and Morgan Stanley's retail concentration averaged approximately 50%. Office was the second highest concentration, on average by originator at 19.83% but Ladder Capital's office concentration was 37.41%. C-III was the biggest outlier in our study - 41.36% of C-III's sampled loans, by balance, were secured by manufactured housing properties. The average for that property type overall was 5.25%.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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Source: Fitch Ratings
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