REITs Healthy but Vulnerable, Lodging Industry Likely to Shackle CMBS: S&P

NEW YORK CITY-Standard & Poors yesterday released its quarterly predictions for the real estate industry. The report concludes that the REIT and CMBS markets are in similar straits; both sectors have thus far steered clear of the economic shoals and neither is out of the water yet.

According to S&P’s Structured Finance Ratings Roundup Quarterly: Third-Quarter Performance Trends, REITs remained relatively stable in Q3 while absorbing $3.6 billion in new debt and preferred securities. S&P regards REIT performance as ” comparatively strong” among its rated companies “ despite signs that the economy was moving toward a mild recession, which had been factored into our ratings perspective prior to September 11,” says Lisa Sarajian, managing director. “Unfortunately, the recent terrorist attacks and the uncertain additional impact they will ultimately have on consumer and business confidence have materially clouded the economic landscape.” The effect, Sarajian says, will be falling ratings for S&P companies over the next few quarters at least.

Likewise, the CMBS market so far has managed to shake off any negative effects of an already-weakening economy that suffered further declines following the events of September 11. In fact, Q3 CMBS saw more than $2 billion in upgrades, exceeding downgrades by a margin of 13 times.