CHICAGO—Chicago-based DBRS, a financial consultant, recently studied how hurricanes impact commercial mortgage-backed security loss and default rates. One conclusion was that, with the “additional stressor of Harvey, the Houston CRE market could be in a particularly tough situation given the existing challenges in a weakened economy resulting from a stagnant energy sector.” The results can be found on its ratings and surveillance platform, IReports.
DBRS also explored the historical effects of major US disasters on CMBS performance. It examined the default rate and associated losses during the periods following Hurricane Katrina, which hit New Orleans in 2005, and Superstorm Sandy, which hit the upper Atlantic coast in 2012.
The firm chose the two states most affected by Katrina – LA and MS – and the three states most affected by Sandy – CT, NJ and NY – to analyze. Based on the data, DBRS found a relatively limited impact on the performance of loans secured by properties in Sandy's path but a significant increase in delinquency and default rates for those properties securing debt in Katrina's path.
DBRS believes multiple factors contribute to the difference. For example, Katrina caused more than $100 billion in damages, compared to about $75 billion attributed to Sandy. And the region around NYC had superior infrastructure and higher population density than the many tertiary and rural communities affected by Katrina.
Furthermore, the unemployment rate spiked in states affected by Katrina but remained flat in states affected by Sandy. “Such findings match DBRS's view that macroeconomic factors, particularly unemployment, are the most important indicators for CMBS performance,” according to the report.
High unemployment rates seemed to drive up the delinquency and specially-serviced rates. Between the storm in August 2005 and October 2005, unemployment in LA increased by more than 2.0% and between October 2005 and January 2006, the specially serviced rate increased from 1.6% to 9.2%. However, “for Sandy, there was no tangible increase in unemployment nor spike in delinquency or specially serviced rates for CMBS loans in the affected states during the months following the storm.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
