For 2019, CMBS issuance will decline to $65 billion and multi-borrower conduit loans to $30 billion, according to Kroll Bond Rating Agency (KBRA) predictions. KBRA indicates that the following factors may contribute to a decline:
- fewer CMBS loan maturities — less than $10 billion of conduit loans scheduled to reach their refinance date in 2019;
- continued-competitive lending environment, particularly from community banks and insurance companies;
- rising rates that have dampened the appeal of refinancing assets at lower rates; and
- some borrowers who are fatigued with the CMBS origination and servicing process.
KBRA notes the CMBS industry is working to attract more investors and borrowers to the conduit loan product by offering these trends:
- more interest-only loans; and
- relaxing certain loan provisions, such a hard lock-boxes, and less-onerous recourse carve-out provisions.
In addition, more CMBS lenders are considering fixed-cost programs to limit the costs to obtain a CMBS conduit loan. Furthermore, some CMBS lenders are marketing “in-house” servicing to enhance the servicing experience that has been less-than-stellar, according to borrowers.
Scott Evans, Senior Managing Director at Government Loan Solutions (GLS), reported at the Secondary Market Summit in Washington, D.C. that for 2018 SBA 7(a) secondary market premiums are down approximately 15% from 2017. The downward trend began in July 2018, when premiums fell to 114 from 116 the prior month. Scott noted that rising interest rates are affecting the supply and demand for SBA 7(a) guaranteed pooled loan portfolios. Rising interest rates result in accelerated SBA-guaranteed loan prepayments, which can result in losses to investors who purchase SBA guaranteed loan pools at a premium when they are prepaid at par.
Of all SBA 7(a) loans, 33% is sold on the secondary market. Historical SBA premiums are shown in the table below.
2018 | Premium* |
---|---|
Dec | 113.00 |
Nov | 113.00 |
Oct | 113.50 |
Sep | 114.00 |
Aug | 114.00 |
Jul | 114.20 |
Jun | 116.00 |
May | 116.40 |
Apr | 116.40 |
Mar | 116.40 |
Feb | 116.40 |
Jan | 116.40 |
Avg. | Premium* |
2018 Average | 114.98 |
2017 Average | 116.40 |
2016 Average | 116.50 |
2015 Average | 116.50 |
2014 Average | 117.00 |
2013 Average | 118.00 |
2012 Average | 116.00 |
*Based on Prime + 2.75%, Quarterly Reset, 25-year loan term. |