Despite the prospect of rising interest rates, Fitch Ratings isn’t bracing for a slowdown in the domestic commercial mortgage backed securities (CMBS) sector in 2005. With 64 deals adding up to $68 billion completed through the end of the third quarter 2004 (versus 56 deals totaling $51 billion through the same period in 2003), Fitch expects total U.S. CMBS issuance to hit roughly $95 billion by year-end. By comparison, total issuance in 2003 was only $74 billion. Next year should also see heavy issuance volume.

"The CMBS sector's ability to attract capital and competition for both debt and equity product will likely be undeterred by interest rate hikes so long as they do not increase dramatically," says Mary O'Rourke, senior director at Fitch Ratings.

Adds O’Rourke: "The CMBS sector's superior performance relative to alternative investments has encouraged investors to increase CMBS allocations." What’s more, says O’Rourke, many of the loans securitized in the mid-1990’s are reaching maturity now. That should create opportunities to refinance existing securitized loans in 2005.