Fitch Predicts Annuity Issuers Will Overcome Office Slump

A Fitch team estimated in April that the slump could push the U.S. commercial mortgage-backed securities delinquency rate to 4.9% next year, from 2.3% this year.

“Three out of four U.S. conduit office loans maturing in 2024 are likely to default,” according to Fitch.

The slump could be especially hard on small U.S. banks, the analysts said.

David Ro, the CMB director at Fitch, said during the webinar that Fitch still sees no clear evidence that commercial real estate prices have reached a bottom.

Life insurers: Marek said U.S. life insurers are in a good position to get through the slump because they have much higher capitalization levels than they had going into the Global Financial Crisis.

Loan losses would have to rise to about eight times recent levels to cause many downgrades, he said.

“There’s a large amount of cushion out there,” he added.

Historically, he said, delinquencies tend to increase when the value of mortgage loans exceeds 80% of building values, but the typical loan-to-value ratio for the office mortgage loans in a life insurer’s portfolio is only about 60%.

The typical occupancy level for the buildings backing the loans is still about 90%.

“It’s something we continue to monitor,” Marek said. “But I think the sector’s been resilient.”

Credit: Allison Bell/ALM