DBRS Morningstar: U.S. PACE ABS 2023 Outlook
NEW YORK--(BUSINESS WIRE)--Jan 5, 2023--
DBRS Morningstar expects the performance of both commercial property assessed clean energy (C-PACE) and residential PACE (R-PACE) securitizations to remain stable in 2023, with relatively low portfolio-level delinquencies and losses.
- Across C-PACE assessments, loan-to-value ratios remain relatively low, while most C-PACE originators continue to require lender’s consent. DBRS Morningstar views the lender’s consent requirement as a credit positive because it helps imbue borrower discipline.
- While demand for C-PACE financing is at an all-time high, executions will have to contend with the rising cost of debt and, in the case of new construction projects, increasing labor and material costs.
- Hotel and retail properties are likely to be the most severely affected by a recession, while office properties, especially suburban offices, could also face challenges as tenants re-evaluate office needs.
- The makeup of originations in pooled C-PACE is expected to shift toward retroactive C-PACE financings and away from new construction projects. C-PACE financing has become increasingly attractive to developers of completed or nearly completed commercial real estate projects as it offers a cheaper source of capital to replace more expensive mezzanine debt, cover cost overruns, and/or add incremental reserve funds.
“C-PACE momentum is expected to continue as additional states enact or expand PACE-enabling legislation to address climate and resiliency initiatives, while R-PACE origination volume will likely remain mixed, constrained by existing onerous consumer protection measures,” said Stephanie Mah, Senior Vice President, Structured Finance Research. Speaking on C-PACE specifically, Mah noted “the sector will likely get some uplift from the passage of the Inflation Reduction Act of 2022 as property owners become even more focused on energy renewal, energy efficiency, and resiliency efforts.”
To read the full report and access the data, click here: https://www.dbrsmorningstar.com/research/408150/us-pace-abs-2023-outlook
The DBRS Morningstar group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings GmbH (Frankfurt, Germany)(EU CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings Limited (England and Wales)(UK CRA, NRSRO affiliate, DRO affiliate). DBRS Morningstar does not hold an Australian financial services license. DBRS Morningstar credit ratings, and other types of credit opinions and reports, are no intended for Australian residents or entities. DBRS Morningstar does not authorize their distribution to Australian resident individuals or entities, and accepts no responsibility or liability whatsoever for the actions of third parties in this respect. For more information on regulatory registrations, recognitions and approvals of the DBRS Morningstar group of companies, please see: https://www.dbrsmorningstar.com/research/225752/highlights.pdf.
The DBRS Morningstar group of companies are wholly-owned subsidiaries of Morningstar, Inc.
© 2023 DBRS Morningstar. All Rights Reserved. The information upon which DBRS Morningstar credit ratings and other types of credit opinions and reports are based is obtained by DBRS Morningstar from sources DBRS Morningstar believes to be reliable. DBRS Morningstar does not audit the information it receives in connection with the analytical process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS Morningstar credit ratings, other types of credit opinions, reports and any other information provided by DBRS Morningstar are provided “as is” and without representation or warranty of any kind and DBRS Morningstar assumes no obligation to update any such ratings, opinions, reports or other information. DBRS Morningstar hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS Morningstar or its directors, officers, employees, independent contractors, agents, affiliates and representatives (collectively, DBRS Morningstar Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of credit ratings, other types of credit opinions and reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS Morningstar or any DBRS Morningstar Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. IN ANY EVENT, TO THE EXTENT PERMITTED BY LAW, THE AGGREGATE LIABILITY OF DBRS MORNINGSTAR AND THE DBRS MORNINGSTAR REPRESENTATIVES FOR ANY REASON WHATSOEVER SHALL NOT EXCEED THE GREATER OF (A) THE TOTAL AMOUNT PAID BY THE USER FOR SERVICES PROVIDED BY DBRS MORNINGSTAR DURING THE TWELVE (12) MONTHS IMMEDIATELY PRECEDING THE EVENT GIVING RISE TO LIABILITY, AND (B) U.S. $100. DBRS Morningstar does not act as a fiduciary or an investment advisor. DBRS Morningstar does not provide investment, financial or other advice. Credit ratings, other types of credit opinions and other analysis and research issued by DBRS Morningstar (a) are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness, investment, financial or other advice or recommendations to purchase, sell or hold any securities; (b) do not take into account your personal objectives, financial situations or needs; (c) should be weighed, if at all, solely as one factor in any investment or credit decision; (d) are not intended for use by retail investors; and (e) address only credit risk and do not address other investment risks, such as liquidity risk or market volatility risk. Accordingly, credit ratings, other types of credit opinions and other analysis and research issued by DBRS Morningstar are not a substitute for due care and the study and evaluation of each investment decision, security or credit that one may consider making, purchasing, holding, selling, or providing, as applicable. A report with respect to a DBRS Morningstar credit rating or other credit opinion is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS Morningstar may receive compensation for its credit ratings and other credit opinions from, among others, issuers, insurers, guarantors and/or underwriters of debt securities. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS Morningstar. ALL DBRS MORNINGSTAR CREDIT RATINGS AND OTHER TYPES OF CREDIT OPINIONS ARE SUBJECT TO DEFINITIONS, LIMITATIONS, POLICIES AND METHODOLOGIES THAT ARE AVAILABLE ON https://www.dbrsmorningstar.com. Users may, through hypertext or other computer links, gain access to or from websites operated by persons other than DBRS Morningstar. Such hyperlinks or other computer links are provided for convenience only. DBRS Morningstar does not endorse the content, the operator or operations of third party websites. DBRS Morningstar is not responsible for the content or operation of such third party websites and DBRS Morningstar shall have no liability to you or any other person or entity for the use of third party websites.
View source version on businesswire.com:https://www.businesswire.com/news/home/20230105005616/en/
Vice President, Corporate Communications
+1 212 806 3240
KEYWORD: UNITED STATES NORTH AMERICA NEW YORK
INDUSTRY KEYWORD: CONSULTING BANKING PROFESSIONAL SERVICES FINANCE
SOURCE: DBRS Morningstar
Copyright Business Wire 2023.
PUB: 01/05/2023 08:40 AM/DISC: 01/05/2023 08:40 AM