Lower interest rates and stable markets are leading to predictions for strong CMBS conduit loan originations for the third and fourth quarters of 2016. The increasing velocity of CMBS loan closings is refreshing for CMBS professionals after poor first and second quarters in terms of low volume and poor profitability.
“Recent CMBS offerings have been very profitable compared with the last six months as a steady supply of CMBS issues faced rising spreads amid tepid demand from bond buyers that sapped profitability,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “Now the reverse has occurred: Slower CMBS issuance had led to a shortage of CMBS securities, resulting in lower spreads and higher profits.”
This outcome is resulting in an interest rate bonanza for borrowers. Borrower rates, which were over 5% as recent as May, have fallen nearly 1% to 4.25%-4.50% for full-leverage cash-out refinance. Large balance, low-leverage loans in primary markets are seeing loan offers below 4.0%!
According to Commercial Mortgage Alert, $13.2 billion of CMBS transactions are in the works, an average of $6.6 billion per month compared with the $4.1-billion average for June-August. This is roughly $80 billion annualized, much higher than the $60-billion annualized pace through August.
Another reason for moving CMBS transactions out the door is so CMBS issuers can clear out loan inventory before risk-retention regulations become effective in late December. For details on risk-retention, click here.