NEW YORK CITY—CMBS issuance for 2015 cleared the $100-billion hurdle for the first time since the downturn, yet not by much, and the finally tally fell well short of the expectations for $110 billion to $125 billion that were widely held as the year began. With that in mind, about two-thirds of respondents to the Commercial Real Estate Finance Council's 2016 Market Outlook Survey expected new issuance for this year to range between $100 billion and $125 billion—essentially the same ballpark for predictions a year ago.

As the new year gets underway, Trepp LLC reports that the delinquency rate for CMBS inched up four basis points in December to 5.17%. Transwestern notes that "dislocations in the bond markets" have underpinned a widening of spreads in 10-year AAA CMBS from 90 bps over swaps to more than 125 bps.

However, Trepp also reported that the delinquency rate had improved by 58 bps over the year-ago period. "Even though the delinquency rate inched up in December, the gradually improving rate was one of the positive stories for the market in 2015," says Manus Clancy, senior director at Trepp. "With issuance levels coming in below expectations and lending spreads widening over the second half of the year, there are more questions than answers heading into 2016. Thankfully, the delinquency rate should not be one of the questions as we expect it to continue downward."

Kroll Bond Rating Agency says that a good litmus test for pricing this year will be the progress of CFCRE 2016-C3, a $703.6-million conduit transaction from Cantor Commercial Real Estate. The ratings agency says it expects CMBS spreads to remain wide by comparison to prior years, "due to the influence of liquidity concerns and potential rate increases. Despite this, we expect that issuance will rise in 2016 given pending maturities and relatively strong property fundamentals."

Another bright spot in the CMBS picture: the universe of post-recession CMBS 2.0 is now larger than that of 1.0 legacy CMBS. As of this past Nov. 30, according to Fitch Ratings, CMBS 2.0 transactions were $206.1 billion compared with $146.6 billion for CMBS 1.0.

That's especially good news because CMBS 2.0 loan performance to date has been better than that for pre-2008 vintages, although Fitch has also expressed concerns over deteriorating credit metrics. Just 37 loans worth a combined $310 million have defaulted thus far, and Fitch expects term risk to remain minimal because these loans were originated with low interest rates.

Specially serviced loans in the Fitch-rated CMBS 2.0 universe account for 24 bps, compared with CMBS 1.0 of 12.9% (997 loans; $18.9 billion). Of the specially serviced loans in CMBS 2.0 transactions, only 13 loans ($106 million) were delinquent, resulting in a delinquency rate for CMBS 2.0 of five bps as of this past November. That's significantly lower than the 1.0 delinquency rate of 10.3%.

Also on the low side as far as CMBS 2.0 is concerned have been loans disposed with losses: eight loans, with total losses of less than $800,000. Additionally, loans on the servicer's watchlist remain low, with less than 6% of the Fitch-rated outstanding 2.0 universe on the watchlist, compared with CMBS 1.0 of nearly 25%.

Naturally, this year will see billions of dollars in CMBS loans coming due, with an average of $16 billion in maturities per quarter. In an updated look at expected loss projections for US and Canadian conduit/fusion and single-borrower/large-loan CMBS, Standard & Poor's notes that "the overall aggregation of realized, base expected, and near-term expected losses for all deal types remain the most pronounced within 2006-2008 vintages." That being said, 60% of CREFC members surveyed expect 75% to 100% of the CMBS loans coming due this year to pay off or refinance.

Instant Insights /

CMBS: 'More Questions Than Answers' in New Year

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