As new issuance in the U.S. commercial mortgage-backed securities (CMBS) sector begins to slowly re-emerge, so may a pair of issues that remain integral to the health of CMBS transactions, according to Fitch Ratings in two new reports.
The issues regarding terrorism insurance and environmental due diligence became dormant when CMBS new issuance hit a prolonged standstill beginning last year. But with a handful of CMBS issuances – both with and without the support of the Federal Reserve's Term Asset-Backed Lending Facility – coming to market, environmental due diligence and terrorism insurance remain important structural safeguards for bondholders.
"An unknown or insufficiently remediated environmental condition can have a significant impact on the value of a commercial real estate property," according to Managing Director Bob Vrchota. As such, Fitch expects that all properties within CMBS transactions will have environmental due diligence performed in accordance with Environmental Protection Agency and American Society for Testing and Materials regulations.
Fitch continues to believe that terrorism insurance coverage remains an important component of the U.S. CMBS market, as well as a vital structural protection for bondholders. As a result, Fitch expects all loans to include coverage against terrorism attacks as part of their standard all-risk insurance policies.
"Based on its review of the coverage in place and the ongoing loan requirements for coverage, Fitch may decline to rate certain transactions with inadequate terrorism coverage," Vrchota adds.
Both reports are available on Fitch's Web site under "Latest Research."
SOURCE: Fitch Ratings