CMBS conduit loan originations at midyear are on pace with a year earlier, as measured by CMBS securities issuance. CMBS conduit issuance as of June 30, 2017 totaled $38.8 billion compared with $30.7 billion a year earlier. After a slow start to 2017, volume picked up in the second quarter. CMBS conduit issuance of $15.2 billion in the first quarter of 2017 fell short of the $19.2 billion for the same period in 2016. But $23.5 billion of issuance in the second quarter of 2017 easily surpassed the $12.6 billion of issuance in the prior year. Industry professionals have predicted volume of $65-$70 billion for full-year 2017, which now appears to be easily achievable. Expectations now are that last year’s total volume of roughly $75 billion is within reach.
The strength in new CMBS originations stems from a variety of factors. CMBS issuers are now comfortable with risk-retention rules, having successfully sold CMBS using all three methods of risk retention — vertical, horizontal and L-shaped — without any method having much impact on bond prices. As a result, CMBS bond spreads have been stable, with senior AAA-rated CMBS market spreads holding steady below swaps plus 100 basis points (bp) for lower leverage deals and roughly swaps plus 100 bp for higher leverage deals.
Indications are that third-quarter issuance will be strong as well. According to Commercial Mortgage Alert, $25.9 billion in transactions have been identified in the pipeline for the third quarter.