CMBS May Have Peaked.

NEW YORK -- The performance of commercial mortgage-backed securities may be peaking, according to Moody's Investors Service, as the real estate cycle runs its course.

This means that the last few years of low loan delinquencies and strong upgrade to downgrade trends for CMBS may be nearing an end.

"Rather than indicating a new paradigm, recent strong CMBS performance may be as good as it gets," according to Tad Philipp, Moody's managing director.

The credit rating agency finds CMBS delinquencies to be inversely related to property prices - as property values rise, delinquencies fall.

Since the first quarter of 2001, commercial property values have gone up 57%, Moody's said, which has suppressed delinquency levels and led to high levels of defeasance activity.

Right now, cap rates (the returns expected by investors) are at all-time lows and rents in many markets are reaching cyclical highs, which causes Mr. Philipp to believe that the property cycle may be turning and that delinquencies may begin rising.

Also, Moody's saw conduit loan underwriting standards continue to decline in the first quarter, with loan-to-value touching a new high of 110.6%, from about 90% in the first quarter of 2003.