ORLANDO -- CMBS default rates will decrease slightly in 2004 due to improved economic news, according to a new report released by Banc of America during the Mortgage Bankers Association’s Commercial Real Estate Finance/Multifamily Convention & Expo in Orlando Monday.

Domestic CMBS supply will decrease slightly to $79 billion this year as higher interest rates take their toll on both fixed and floating rate loan demand, according to the report. However, the effect will be partially offset by appreciating values.

Expect liquidations to rise this year as 2002 defaults are resolved and the CMBS universe grows larger. Also, loss rates on liquidations are likely to decrease, aided in part by the fall in interest rates over the past year. Banc of America also predicts that confidence in the real estate sector will improve, which in turn should boost demand.

Aside from conduits, Banc of America believes that large malls offer the most security—yet investors may find better returns by seeking out riskier properties. Hotels are one such property, which should respond quickly to the rising economy. Meanwhile, office properties offer an intermediate possibility with less potential to find bargains.