According to Commercial Mortgage Alert, CMBS issuance reached a milestone in 2015 – eclipsing the $100-billion barrier for the first time since 2007 – but only barely, finishing at $101 billion. This compares with $94.1 billion of CMBS issued in 2014, up 7%, but is far less than the $124 billion projected by market pros at the beginning of 2015.
Issuance sagged in the latter half of 2015 as CMBS spreads rose steadily. Senior AAA-rated CMBS traded at roughly swaps plus 140 basis points (bp) at the end of 2015, up from approximately swaps plus 100 bp in midsummer. Worse, the increases were relentless: Each week seemingly posted higher spreads that the week before. Lenders needed to pass through the spread increases to borrowers to make money at securitization, putting a damper on borrower enthusiasm, which resulted in some deals not closing.
Against this backdrop, CMBS originators are cautiously optimistic that CMBS conduit lending will grow in 2016. A panel of industry veterans is projecting, on average, $110 billion of CMBS conduit loan originations for 2016, up roughly 10% from 2015 and continuing a string of annual increases since 2010.
Summary of CMBS Issuance
2010 $ 11.6
A good portion of the optimism stems from the large block of 2016 CMBS conduit loan maturities. “Roughly $100 billion of CMBS conduit loans mature in 2016,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “Most of these loans were written in 2006 when rates were in the 5.5% area, so even with today’s rates in the 5.0% area, borrowers will see a rate reduction. Plus, many of these borrowers do not have any other option but to accept whatever is available in CMBS.”