WASHINGTON, DC—"Uncertainty regarding the timing of the Federal Reserve's heavily anticipated increase in interest rates has caused a fluctuating and conflicted market outlook, pushing investors to demand higher spreads on issues of new CMBS offerings."

So says Jonathan Aghravi, senior director for Eastern Consolidated in its latest Streetpulse report. To be sure, spreads on CMBS have fluctuated over the past few months, but few doubt--and this includes Eastern Consolidated itself—CMBS' resilience.

"Despite these headwinds, conduit lenders should continue originations as the real estate market continues its rapid expansion. Recent September issues have been well-absorbed, with spreads dropping from monthly highs given reassuring statements by the Fed," Aghravi wrote.

Indeed, CMBS is poised to meet a psychological post-crisis high-note of $100 billion for 2014, well exceeding the $81 billion of 2013.

There is significant investor demand for these bonds, Steve Renna, CEO of CREFC tells GlobeSt.com. He points August when spreads were gaping out and few deals priced. Then when more product came online in September, spreads came in and yields tightened.

For a healthy market, Renna says, "you want to see issuance to climb at steady pace and not spike – and so far that is what is happening."

There are other indications that CMBS is on a solid footing. Originators are using more prudent assumptions in their underwriting and credit enhancements have risen to reflect declining credit profiles and the rise in leverage levels.

In fact credit enhancement levels in US CMBS are close to double those in 2006 and 2007, a recent Fitch Ratings report noted.

Instant Insights /

CMBS to Reach Psychological Milestone: $100B

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