12.7.16: … But a Busy CMBS Market Now Leaves a Hole for First-Quarter 2017

CMBS issuance for the beginning of 2017 looks very weak because CMBS issuers are clearing out loan inventory this month in anticipation of risk-retention rules effective December 24. According to a review by Commercial Mortgage Alert (CMA), only seven transactions totaling $6.4 billion are in the pipeline for January and February. The $3.2-billion monthly average would be well below the 2016 level of $6.3 billion and 2015’s $8.4 billion.

The slowdown has been widely blamed on the unknown consequences of the risk-retention rules set to become effective on December 24. Rather than wait and see, most CMBS players elected to move out their inventory under the old rules. With CMBS pricing stable and loans on the books priced at relatively healthy profit levels, it was not a difficult decision to simply move the deals out now.

To be fair, a number of larger CMBS players have already rolled out risk-retention compliant deals with success, so the uncertainty surrounding the rules is less. However, it is still unclear which method of compliance — the “horizontal,” “vertical,” or combination of horizontal and vertical approaches — will become market standard. Without knowing, most CMBS originators are not aggressively pursuing new loans until the market standard for risk retention is determined, which will result in a slow start in 2017 for CMBS loans.

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This entry was posted in CMBS, CMBS Securities, Commercial Mortgage-Backed Securities, Michael D. Sneden, News & Recent Closings, Valuexpress and tagged , , . Bookmark the permalink.

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