CMBS Consensus Sees Up to $125B in New Deals

NEW YORK CITY—When it comes to gauging the size of the CMBS market this year, readers of Real Estate Forum are solidly in the mainstream. A survey of CRE Finance Council members in January found that 70% expect CMBS originations to increase about 25% this year from 2014's tally of $90.7 billion, totaling between $101 billion and $125 billion.

Forum readers are only slightly less bullish, with 57.7% expecting CMBS volume to exceed $100 billion in 2015, including 11% who predict we'll see it go north of $125 billion. Readers' outlook on the capital markets—from CMBS to the availability and attractiveness of debt financing sources—will be the focal point of a feature in the April issue of the magazine.

Already, the numbers are supporting industry members' expectations. Earlier this month, analysts at JP Morgan Chase predicted that volume for the first quarter would reach $25 billion, while Morgan Stanley predicts $30 billion. Even if volume for the subsequent three quarters remained unchanged from Q1, the year-end tally would be within the consensus $101-billion to $125-billion parameters.

Two factors underpin the expectation for increased issuance of securitized commercial mortgage debt this year: improving fundamentals for commercial real estate and the beginning of a wave of maturities. Citing a strong outlook for the CRE finance market generally, CREFC in January pointed to strong investor demand, relatively low levels of new construction and improving property fundamentals as well as an impending need to refinance.

As for the wave of 10-year CMBS maturities, it's set to begin rolling in during Q2. Fitch Ratings has projected $9.7 billion worth of Fitch-related loans coming due between April 1 and June 30, nearly three times the volume of Q1 maturities. The quarterly tally jumps to $12 billion in both Q3 and Q4.

In all, 2,580 Fitch-rated loans will reach their due dates this year, totaling $36.4 billion. The ratings agency says maturities will average more than $16 billion per quarter in 2016 and close to $18.4 billion per quarter in 2017.

Trepp LLC has put the three-year total for maturing conduit CMBS deals at more than $300 billion, thanks largely to a preponderance of 10-year balloon loans issued between 2005 and 2007. “That's more than 2.5 times the amount that matured from 2012 to 2014,” according to a recent report from the CMBS analytics firm.

In fact, Trepp noted in its report, nearly 60% of the loans in the CMBS conduit universe will mature over the next three years. “Commercial real estate lenders, borrowers and CMBS investors alike are looking at the next three years as a true test of the strength of recovering capital markets.”

A lot can happen in three years' time. “The CMBS origination engine will have to pick up the pace to digest the wall of maturities, especially in the heavy 2016 and 2017 years,” Trepp noted in December. The firm cited headwinds that include “the threat of rising rates, the end of quantitative easing and the implementation of new risk retention regulations” scheduled to take effect in January of '17.

Read more about what Forum readers have to say about the capital markets outlook in the upcoming issue of Real Estate Forum magazine. For more information on the issue, or to participate, contact Gregg Christensen.