One of our CMBS conduit lending partners provides us with a regular forecast of its views on the economy and its expected impact on CMBS conduit lending. We have completed close to $500 million in transactions since the restart of CMBS conduit lending in 2010 with this partner, so we like to share their views with our readers. This publicly traded firm continues to aggressively originate and contribute fixed-rate CMBS conduit to securitizations, but it also provides a complete suite of capital markets products. Here is what the company has to say:
- Treasury Rates: After hovering around 2.75% for months, the 10-year swap rate closed recently at 2.25%. Many economists believe that rates will now be lower for longer.
- Economic Outlook: The slow and steady recovery is expected to continue in 2015 with 2.8% GDP growth and a projected S&P 500 of 2,189.
- Positives include (1) private sector job growth, (2) strong auto sales, (3) very low interest rates, (4) global monetary easing, (5) declining oil and gasoline prices/end of OPEC? and (6) improvement of the for-sale housing market/price surge.
- Risks include (1) recession in Europe and slowdown in emerging markets: China, Fragile Five, Russia and numerous other countries; (2) geopolitical events such as ISIS (Iraq, Syria, Saudi Arabia), Ukraine, Gaza, Pakistan, Iran, North Korea and Libya; (3) interest rate normalization; and (4) credit and asset bubble.
- Capital Markets Lending: 5-, 7-, and 10-year fixed-rate CMBS conduit loans; fixed or floating rate balance sheet loans with terms from 1 to 5 years; and seamless mezzanine loans behind fixed-rate CMBS conduit loans with 75%-85% combined LTV.