July 6, 2015 / 4:53 PM / 2 years ago

Fitch: Commercial mREITs Eye Growth as Banks Keep CRE in Check

(The following statement was released by the rating agency) NEW YORK, July 06 (Fitch) LoanCore Realty Trust, Inc.'s (Pending: LCRT) forthcoming commencement of an initial public offering is the latest signal of the increasing role of commercial mortgage REITs (commercial mREITs) in the overall market for commercial real estate (CRE) lending, says Fitch Ratings. With between $350 billion and $400 billion of CRE loans maturing annually in 2016 and 2017, Fitch expects commercial mREITs to become more significant competitors to banks in CRE lending. As pure-play CRE debt investors that are less regulated relative to banks, commercial mREITs predominantly originate commercial mortgage loans to hold on their balance sheets, originate conduit loans for securitization sales and invest in CMBS. The commercial mREIT sector is currently comprised of 13 companies, including Blackstone Mortgage Trust, Inc. (NYSE: BXMT), Ladder Capital Corp. (NYSE: LADR, subsidiaries with an Issuer Default Rating of BB, Outlook Stable), Starwood Property Trust, Inc. (NYSE: STWD) and specialty investors such as iStar Financial Inc. Collectively, these firms had $32.2 billion in total assets as of March 31, 2015, up 52% from year-end 2010, or about 9% on a compounded annual growth basis. Many mREITs have floating-rate loans holdings, including higher risk CRE loans on transitional properties, thereby potentially profiting from a rising interest rate environment. LoanCore Realty Trust, Inc., with approximately $3.2 billion in assets under management and having filed its S-11 with the SEC on May 14, 2015, is another player in the mix. The company's management affiliate, LoanCore Capital, LLC, is a joint venture between an affiliate of the investment bank Jefferies Group, LLC (IDR BBB-, Outlook Stable) and an affiliate of GIC Real Estate Private Limited, the real estate investment arm of the government of Singapore's sovereign wealth fund. There is the possibility that mREITs will fill a void left by large U.S. banks, which have pulled back from the more volatile segments of CRE lending, such as construction, acquisition and land development while growing overall CRE lending volumes. Many banks remain mindful of the poor performance of volatile CRE loan segments during the financial crisis, which is now reflected in the Fed's annual stress testing and the Comprehensive Capital Analysis and Review (CCAR) process. Projected CRE losses have been among the larger contributors to overall losses under the Fed's severely adverse scenarios. In the 2015 test, cumulative CRE loan losses reached 8.6% of total CRE loans, versus a cumulative loss average of 6.1% on across all loan sectors. Contacts: Sean Pattap Senior Director Financial Institutions +1 212 908-0642 New York, NY Matthew Noll, CFA Senior Director Financial Institutions - Fitch Wire +1 212 908-0652 New York, NY Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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