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The REIT Weekly – CMBS Deliquency Rates Fall

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REITs and the CMBS market continue to show strong indicators of growth nearing the end of 2014. In addition, multifamily housing developments are on the rise in the senior housing sector.

According to industry experts from Alberto & Associates, multifamily housing developers may be the future of senior housing. In recent years, there has been increased demand for urbanizing living communities in the senior housing sector through the offerings of nearby retail establishments, restaurants, parks, localized health care, and other entertainment options. “This is where the market is moving, especially on the senior living side, because the typical senior in the next 10-15 years is going to want to have more of a town or cityscape lifestyle,” said Angelo Alberto, principal of Alberto & Associates.

Despite historically low mortgage rates, new home sales in October proved to fall below industry forecasts. Factors such as strict lending rules, slow wage growth, and unemployment are said to have contributed to the slow month in sales. However, industry experts remain hopeful of a continuous recovery from the housing market. “The underlying drivers of demand, which are population growth, job growth, affordability, household formations are strong arguments for that growth to continue,” said Brent Anderson, vice president at Meritage Homes Corp.

November was a modest month for REITs as FTSE NAREIT All REITs Index reported a total return of 2.3 percent compared to a 2.7 percent return for the S&P 500 Index. Given that October was a strong month for REITs, experts agree that November’s modest performance is unsurprising and will not negatively impact future forecasts. “If we can stay in this middle ground that we’ve been in the past couple of years…we’re optimistic that REITs are going to continue to outperform the overall market,” said Ryan Meliker, senior analyst at MLV & Co.

In the last month, commercial mortgage backed securities (CMBS) delinquency rates have fallen to 5.8 percent, leaving industry experts to believe that the CMBS market will end 2014 on a strong note. Several factors such as interest rate concerns, lending standards, and the maturation of upcoming CMBS loans contributed to this year’s results and experts look towards 2015 for continuing growth in the market. “The CMBS market is heading into year-end with a lot of momentum. Increased volume, falling delinquency levels, a drop in the Treasury 10-year note yield and lower energy costs have produced a scenario in which “the wind is fully at the market’s back,” said Manus Clancy from Trepp, LLC.