National CRE News In Your Inbox.
Sign up for Connect emails to stay informed with CRE stories that are 150 words or less.
Could Macro Speed Bumps Slow CMBS Market’s Roll?
Commercial mortgage-backed securities (CMBS) issuance started 2018 strong, and it is expected to continue to be robust through the third quarter, according to a report by Morningstar Credit Ratings, LLC. New issuance will total $44.3 billion in H1 2018, according to Trepp, LLC, which would mark a healthy increase over the $34.45 billion issued in the first half of 2017.
Morningstar’s Steve Jellinek writes that strong performance was achieved despite concerns about rising interest rates and the Federal Reserve’s self-imposed downsizing of its balance sheet, not to mention fewer maturities that were in need of refinancing, and signs of overbuilding in certain commercial real estate sectors.
Factors contributing to the market’s growing appetite include the ease of re-underwriting the collateral, better credit enhancement, and higher-quality assets backing the deals. Heavy deal flow on trophy skyscrapers in major metropolitan areas primarily fueled the activity with office loans making up the largest portion of total issuance with $4.48 billion, or 29.1% of 2018 volume, wrote Jellinek.
Highlights include:
– The CMBS delinquency rate has remained low, as liquidations and originations outnumber new problem loans. As servicers wind down legacy (pre-2010) portfolios throughout the year, Morningstar expects the delinquency rate to stay low.
– Retail consolidation will continue to make headlines in 2018. However, in contrast to 2017, Morningstar does not expect a wave of regional mall defaults.
– The multifamily sector could experience slower growth, especially in markets that have had sharp increases in supply, though Morningstar expects secondary markets with weaker supply growth to outperform.
For comments, questions or concerns, please contact Dennis Kaiser
