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CMBS growth trend expected to continue.

Commercial mortgage-backed securities (CMBS) originations reached a post-crisis high $99 billion last year, and many analysts predict another healthy year in 2015.

"It's been a very attractive business over the last few years," said Ted Borter, managing director with Goldman Sachs, New York, speaking at the Mortgage Bankers Association's Commercial Real Estate Finance/Multifamily Housing Convention & Expo.

Brian Furlong, managing director with NYL Real Estate Investors, New York, said that except for potential externalities stemming from instability overseas, "there are not that many clouds on the horizon. Performance is expected to be pretty good for investment-grade buyers," he added.

Borter said he expects to see "reasonable" CMBS sector growth this year, forecasting $125 billion in 2015 originations. "We're seeing a lot of competition right now from life companies. We'll compete with life companies for better-quality assets," he said. "We see a lot of activity in that space. With rates as low as they are and capital coming from all over the world, I think you'll see a lot of asset sales and portfolio transactions, both of which lend themselves nicely to the CMBS world. You can move more quickly and you can raise big dollars via CMBS."

Market research firm Trepp LLC, New York, agreed that conditions remain favorable for elevated CMBS issuance activity. "Plenty of 2015 loans will need to be refinanced, the 10-year Treasury yield keeps decreasing and spread volatility has been modest," the firm's January Delinquency Report said. "All of this means [CMBS] investors and issuers should stay busy for the foreseeable future."

Trepp reported that the CMBS delinquency rate started 2015 just as it finished last year, with a decrease--the 18th such drop in the last 20 months. The delinquency rate fell to 5.66 percent in January, down 159 basis points from a year ago.

The industrial delinquency rate fell 35 basis points to 7.2 percent while the hotel sector's delinquency rate fell 37 basis points to 4.4 percent. It remained the best-performing property type. The multifamily delinquency rate slid 4 basis points to 8.8 percent, but it remained the worst-performing property type. And the retail loan delinquency rate dropped 6 basis points to 5.6 percent. Only the office delinquency weakened, inching up 10 basis points to 6.1 percent in January.

This healthy performance has spurred a CMBS resurgence lately. According to Commercial Mortgage Alert, the number of firms that issue CMBS grew to three dozen.

Some analysts, however, expressed concern about the number of new firms entering the CMBS space. "I don't think anyone thinks that we need 36 conduit programs," Borter said.

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Title Annotation:Commercial
Publication:Mortgage Banking
Geographic Code:1U2NY
Date:Mar 1, 2015
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