Matthew McGovern
Director, GRS | Corteq
(646) 760-0851
[email protected]
Projections on the CMBS market for the coming year are being released by several organizations, and as usual, they are mixed, depending on the source of information.
Last month, CMBS delinquencies reportedly rose to 5.03 percent nationally, according to research firm Trepp. This represented an increase of five basis points from October, but year over year, the rates were still 10 points below November 2015, and some commercial real estate sectors, such as retail, saw rates actually drop.
Looking toward next year, S&P Global Ratings recently said that of the $92 billion of loans maturing in 2017, about $12 billion could default and face special servicing. Though defaults have declined annually since 2011, they have crept up so far this year because of the volume of 2006 and 2007 loans maturing from now through 2018.
Meanwhile, Kroll Bond Rating Agency predicts that the 2017 issuance of CMBS will fall to between $55 billion and $65 billion, down from a projected $65 billion to $70 billion this year. Both are significantly less than the $95.8 billion issued in 2015. Among the reasons for this are uncertainty about the new presidential administration’s policies, slowing property rent and asset-value increases and the number of maturities and the number of maturations and refinancing that will place next year, among others.
Moody’s had a more positive-sounding outlook about CMBS’ future in 2017. It predicts that most loans originated a decade ago would be refinanced in a “timely manner.” Moody’s has deemed the CMBS market “stable” and that the type of asset in a certain locale would be a primary reason for its success or failure. The firm also predicted a continuing recovery for retail and office assets in general.
Fitch Ratings sees next year as a “clean-up call” in CMBS, “when a CMBS transaction party purchases the remaining assets once the volume of a transaction outstanding reaches a pre-defined threshold established by the Pooling and Servicing Agreement (PSA),” making the process more complicated when loan are special serviced.
CBRE found the third quarter encouraging. The firm pointed out that $19.2 billion of CMBS were issued during the period, compared to $11.4 billion in the second quarter. CMBS also accounted for 15 percent of all commercial real estate lending, up from 10 percent in the second quarter. However, CBRE did point out that danger signs ahead could be the coming maturities, as well as the possibility of an interest-rate hike.
So, similar to the presidential-election results, it sounds like we are in a “wait and see what happens” environment in the industry.
How do you think the CMBS picture will shape up next year?