With values of problem commercial real estate still dropping, another batch of top AAA-rated property bonds in September failed to provide expected interest to investors, according to Barclays analysts led by Lea Overby.
The tally of total AAA bonds with interest shortfalls has now reached eight when looking across single-asset, single-borrower bond deals. Those were sold to investors years ago in a lower rate backdrop.
While that makes up less than 2% of the sector, shortfalls have been climbing, especially for riskier “junk-rated” bonds, as fresh property appraisals come in lower and borrowers continue to struggle to refinance older loans.
“We still urge caution when looking to seasoned paper, as the performance of many assets is quite weak and the risk of extensive losses is high,” Overby’s team wrote in a Monday client note.