Tightening credit spreads for U.S. CMBS since the highs reached in the first quarter of 2009 should continue to spur new CMBS issuance in the near term, according to Standard and Poors (S&P). The agency notes that issuance for the fourth quarter of 2010 could fall within $4-$8 billion, the largest total since early 2008, based on the current public pipeline of CMBS transactions.
Annualizing S&P’s fourth-quarter forecast would indicate $24 billion of issuance in 2011; however, the agency projects a higher $35 billion based on its regression estimates relating CMBS issuance to CMBS spreads and U.S. Treasury yields, with adjustments for some positive qualitative factors. Its 2011 forecast assumes that spreads and 10-year U.S. Treasury yields remain at current levels.
“While $35 billion may seem high relative to the amount of issuance during the past two years, it would roughly equate to the levels we saw in 1996 and 1997,” S&P says.
Other factors aside from spreads and interest rates are expected to affect U.S. CMBS issuance in 2011. Several new lenders have entered the market and many existing lenders are planning to significantly boost their issuance volumes. Furthermore, several of the new financial regulations are anticipated to be only a minor impediment to new CMBS issuance.
“Finally, $40 billion of fixed-rate CMBS matures in 2011, in addition to as much as $300 billion of non-CMBS commercial mortgages. This rollover could provide opportunities for CMBS lenders to increase their loan origination volume,” the agency concludes.