Triple-digit CMBS: If not this year, maybe next?

Spare an unforeseen rally, it’s looking like the year-end US CMBS issuance tally will fall short of the triple-digit billions number many had predicted, anticipated and/or hoped for. As of today, there was $87bn of CMBS issuance, according to TREPP.

Spare an unforeseen rally, it’s looking like the year-end US CMBS issuance tally will fall short of the triple-digit billions number many had predicted, anticipated and/or hoped for. As of today, there was $87bn of CMBS issuance, according to TREPP.

“A few deals have been pushed back, so issuance will most likely not hit $100bn this year,” Joe McBride, a TREPP analyst, told Real Estate Capital.

BallStill, major market players this month haven’t been shy to predict another year of breakthrough post-recession issuance in 2015. Notably, Morgan Stanley earlier this month predicted that 2015 issuance will be $125bn and could fly as high as $140bn in a “bull case scenario.”

“The CMBS market is moving full speed ahead as commercial real estate prices return to pre-crisis peaks, issuance accelerates, and underwriting standards loosen,” Morgan Stanley wrote in a report.

The firm predicted the $125bn total will consist of $80bn in conduit and $45bn of single asset/borrower issuance, “as credit standards loosen” and CMBS market share grows.

“Our bear case scenario drops our projection to $100bn as insurance companies become more competitive for large loans against a backdrop of higher interest rates,” the firm added.

Kroll Bond Ratings agency put forth its own prediction this week at a more conservative $110bn. Like many others, it had predicted that issuance in 2014 would reach $100bn.

“In the year ahead, KBRA expects increased CMBS originations due to improving commercial real estate fundamentals in many markets and relatively low interest rates,” the ratings agency wrote, pointing to the more than $71bn of private label CMBS loans expected to mature next year.

But, KBRA noted in the report: “There is the potential for actual issuance to come in higher if the economy maintains its current trajectory and interest rates remain as low as they have been for much of 2014. Our issuance forecast utilized conservative assumptions surrounding the refinance of prior CMBS loans and considered moderate interest rate growth.”

McBride, from TREPP, noted that the non-extension of The Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), slated to expire at the end of the year, “may change the pricing of single asset loans and deals slightly and push their pricing back,” possibly tapering issuance throughout 2015. TRIPRA was an act brought in during 2007 to reimburse insurers for 85% of losses certified as terrorism events in order to encourage the industry to operate effectively.

That sentiment was echoed by Fitch ratings in a report released this week. The ratings agency noted that “the failure of Congress to renew TRIPRA could have repercussions for the insurance industry and segments of the broader economy, particularly commercial real estate, mortgage lending and construction markets in 2015.”

“TRIPRA is an important component of the CMBS market and has become common in many transactions,” Fitch wrote in its report. “If TRIPRA is not renewed it would have a negative impact on ratings of office properties with loans in CMBS single-asset transactions, for example. The lack of TRIPRA could also affect some multi-borrower transactions, if the number and size of the loans lack sufficient coverage, or the risk of terrorism-related losses could not be mitigated by the rest of the pool.”

McBride, while admitting it was a conservative guess, ventured a $105bn estimate for next year’s CMBS issuance.

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