According to a recent report from Trepp, private-label CMBS issuance is projected to rise at least 10% in 2021 from 2020’s depressed levels. So far, $50.6 billion of conduit and single-borrower transactions have priced in 2020. Including deals slated for December, 2020 will finish with about $55-$60 billion in full-year issuance. That is down 38% from the $96.7 billion of CMBS issuance in 2019.
Projections for 2021 are for CMBS issuance to increase within a range of $60-$75 billion. Issuance will face headwinds, one of which is maturities that will total a paltry $13 billion next year. Property transaction volume, which drives demand for CMBS loans, remains tepid. CMBS lenders are also expected to shy away from hotels and certain retail properties, which have been disproportionately affected by COVID-19. On the other hand, the Federal Housing Finance Agency reduced the lending cap for both Fannie Mae and Freddie Mac and increased requirements for them to lend against mission-driven or affordable housing. That could result in CMBS lenders increasing their share of the multifamily lending pie in 2021.
One benefit of lower CMBS origination will likely be tight pricing on CMBS securities as investors hunt for yield. Conduit spreads, for example, have reached pre-COVID levels. A pair of conduits that priced last week – Benchmark Mortgage Trust, 2020-B21, and BANK, 2020-BNK29 – saw their benchmark bonds – those with the highest possible ratings and 10-year average lives – price at 83 and 84 basis points more than swaps, respectively. These results will flow to very competitive interest rates for CMBS borrowers.