According to Moody’s, U.S commercial mortgage-backed securities (CMBS) issuance this year will reach $67 billion, up from last year’s total of $66 billion. International issuance, however, will ebb slightly to $35 billion, down from $38.5 billion last year, the ratings firm predicts. Total CMBS issuance for 2002 was $104 billion, according to Moody’s.

This year also could deal some economic and political wild cards to investors, such as rising interest rates, leasing to a short-term surge of borrowers, followed by a slowdown of origination, according Tad Philipp, Moody’s managing director for CMBS. For the remainder 2003, real estate-oriented collateralized debt obligations (CDO) are expected to continue to come to market.

"CDOs have developed an important role in the CMBS industry, as many subordinated bond buyers have turned to them as a major source of financing," says Philipp. "For subordinated bond buyers CDOs have the important benefits of matching the term of their assets with the term of their liabilities, helping to avoid a mismatch."

Though Moody’s projects a decline in offshore CMBS issuance, they expect Canadian CMBS issuance to rise by 50% this year. In the U.S, Moody’s is pessimistic about the office market’s performance over the next few months. "Given that the corporate sector was weak for much of 2002, their credit issues should continue spilling over into CMBS performance throughout 2003, making this the year of the lag. However, we expect delinquencies to rise only into the mid to upper 2% range, a far cry from levels roughly twice as high during the early 1990s," says Philipp.

In the fourth quarter of 2002, Moody’s downgraded a full 80% of ratings in the U.S real estate market. Through the first three quarters of 2002, downgrades comprised 74% of all rating actions.