An active pipeline of commercial MBS deals over the next several weeks will push annual issuance close to $90 billion, well above the $65-billion average prediction by a panel of CMBS professionals polled at the beginning of the year.
According to Commercial Mortgage Alert, 15 more transactions totaling $15 billion are scheduled to price by yearend. Added to the $72 billion of offerings already completed, full-year volume would climb to $87 billion, up 80% from 2012.
Although CMBS loan originators report strong loan demand, some headwinds are apparent moving into 2014. Rates have moved up since the summer, when Fed Chairman Ben Bernanke told Congress that the Central Bank’s bond purchases may be reduced if the U.S. employment outlook shows sustained improvement. In June, Bernanke said the Fed could begin phasing out bond buying later this year and halt purchases around mid-2014 as long as the economy meets its forecast. As a result, rates moved up approximately 100 basis points, resulting in CMBS loan rates moving from the low 4% area to the low 5% area, slowing demand.
On the other hand, maturing CMBS loans will continue to be refinanced into new CMBS loans, and with Fannie Mae and Freddie Mac cutting back on originations, multifamily lending in CMBS may rise next year. In addition, the scare of higher rates next year will likely pressure some borrowers to refinance early next year to avoid the risk of higher rates later.
“We will start to see some CMBS volume estimates for next year in the upcoming weeks, likely in the $75-$100-billion range. I hope I am wrong, but I see 2014 at the lower end of the range,” noted Michael D. Sneden, Executive Vice President at ValueXpress.