Tightening credit spreads for U.S. commercial mortgage-backed securities (CMBS) since the highs reached in the first quarter of 2009 should continue to spur new issuance over the near term, according to a report published by Standard & Poor's Ratings Services’ global structured finance research team.
The rating agency published the report, "U.S. CMBS Issuance Could Rise Significantly In 2011," on Thursday and has made it available on RatingsDirect, on the Global Credit Portal.
CMBS issuance for the fourth quarter could fall within the $4 billion to $8 billion range—the largest total since early 2008—based on the current public pipeline of CMBS transactions, with some adjustments for deals with uncertain timing. Annualizing Standard & Poor’s fourth-quarter forecast would indicate $24 billion of issuance in 2011. However, the agency projects a higher figure—$35 billion. That larger amount is based on regression estimates relating CMBS issuance to CMBS spreads and U.S. Treasury yields, with adjustments for some positive qualitative factors.
The report assumes that spreads and 10-year U.S. Treasury yields will remain at today's levels. While $35 billion may seem high relative to the amount of issuance during the past two years, it would roughly equate to the volume issued in 1996 and 1997.
Lenders enter the fray
Standard & Poor’s contends that several factors aside from spreads and interest rates will 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 including the Dodd-Frank Act, the SEC's Regulation AB II, and Financial Accounting Standards Board (FASB's) FAS 166 and 167 should be only a minor impediment to new CMBS issuance, according to the rating agency.
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 reports are available to subscribers of RatingsDirect on the Global Credit Portal and to non-subscribers from Standard & Poor’s.