More borrowers are securing CMBS conduit loans as we progress in 2017, as evidenced by trends in the issuance of CMBS conduit securities. CMBS conduit issuance of $15.2 billion in the first quarter of 2017 fell short of the $19.2 billion for the same period in 2016. However, volume has picked up, and the market is on pace for $30 billion of issuance in the second quarter, according to projections from Trepp. This compares with $11.4 billion of issuance in the second quarter of 2016. Furthermore, industry professionals believe that last year’s total volume of roughly $75 billion is within reach, with many predicting volume in the $65-$70 billion range.
“We are seeing more CMBS conduit loan requests now than we’ve seen in quite a while,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “The requests span a variety of asset classes and situations. For example, we continue to refinance CMBS conduit loans that are maturing, multifamily loans that don’t quite fit Fannie Mae and Freddie Mac criteria and transactions in which the sponsor completed a value-add and wants to take cash out of the property.”
The strength in new CMBS originations stems from a variety of factors. CMBS issuers are now comfortable with risk-retention rules having successfully sold CMBS using all three methods of risk retention — vertical, horizontal and L-shaped — without any method having much impact on bond prices. As a result, CMBS bond spreads have been stable, with senior AAA-rated CMBS market spreads holding steady below Swaps plus 100 basis points, and the Swap rate has also been relatively stable, resulting in attractive interest rates for borrowers below 5% for full-leverage transactions and in the 4.5% area for low-leverage deals.