Commercial Service: Economic Slowdown Not Likely to Sink Commercial Mortgage Loans.(Brief Article)

Most commercial real estate market participants believe the sector is in a good position to ride out any economic slowdown.

But a Moody's Investors Service report may give pause to servicers.

As more real estate financing is raised through securitization, the real estate market is getting more in tune with the capital markets, according to a Moody's report "CMBS: New rules for an old asset class."

Also, investors who had looked at real estate as a safe haven from capital markets troubles are finding the sector offers less of these diversification benefits nowadays.

The reason, says Moody's analyst Sally Gordon, who wrote the report, is the increasing securitization of commercial and multifamily mortgages. Commercial and multifamily mortgages securitized as bonds grew in dollar amounts from 5% of total commercial and multifamily mortgages outstanding in 1990, to 20% today.

Also, approximately $300 billion worth of bonds backed by real estate are outstanding today, representing 15% of the financing for the commercial mortgage market, and 33% of the $390 billion multifamily mortgage market.

According to Ms. Gordon, "Historically, neither the timing nor the term of the real estate cycle coincided with the macro economic business cycle. Commercial real estate suffered the harshest downturns in the mid-1970s and the late 1980s and early 1990s - both during growth phases of the business cycle.