Anyone with their ear to the ground has been hearing the rumblings for a while: a wave of commercial mortgage-backed securities (CMBS) issued in 2006 and 2007 is set to mature in the first half of 2017, followed by a smaller batch later in the year.
But what’s keeping lenders, originators and brokers awake at night? What impact will these maturities have on the CMBS market?
“We survived 2016 and the volatility there, and, while we can’t be exactly sure what will happen this year we don’t think it will be as drastic as many once thought,” Michael Heagerty, Principal at San Francisco-based Newmark Realty Capital, noted during a panel at MBA CREF 2017 in San Diego.
But that doesn’t mean concerns don’t remain. According to JLL’s U.S. Investment Outlook, CMBS issuance in 2016 was down 24.8 percent year-over-year as a result of market uncertainties and the risk retention rules that kicked in late December.
“CMBS has really become a lender of last resort,” said Heagerty. “We make sure to offer it as competition, but many borrowers have had bad experiences with it in the past and want to steer clear of it.”
Added Patrick Sargent, Partner at Alston and Bird, LLP, “CMBS accounted for approximately 25 percent of commercial real estate originations in 2007, but now are down to about 12.5 percent.”
JLL Research predicts continued low issuance for CMBS in 2017, somewhere in the range of $55-80 billion, and life companies, debt funds and banks will mobilize to fill the gap.
But, Heagarty mentioned, there is still a need for CMBS moving forward, especially as the markets find balance.
“We are going to need CMBS,” he said. “In case there is ever a capital contraction, CMBS will have to be there to provide the necessary funding, and we all have to be ready for that.”