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Tuesday, 15 January 2019

The Next Crisis May Be Different for Banks and CMBS

Banks are likely to feel the pinch of rising interest rates sooner than CMBS, which may not see any impact for at least another four years.

By Manus Clancy, Trepp LLC

There are many things to worry about in commercial real estate. But when it comes to rising interest rates, not all risks are created equal.

In 2008, overstated property valuations, loose lending and heavy leverage on loans issued in 2006 and 2007 helped sink lenders of all stripes - from banks to CMBS conduits.

No two crises are the same - and we're not necessarily saying that rising interest rates will trigger a crisis - but rising rates might take a much different bite out of banks than they would CMBS.

Banks are much more likely to write loans with floating rates and terms of five years or less. Libor - the benchmark against which most short-term, floating-rate loans are pegged - has increased disproportionately to the long end of the yield curve.

So, banks will have to contend with borrowers having to refinance their...

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