Archive for May, 2014

2015-2017 Commercial Mortgage-Backed Securities Projections

The good news is that the markets continue to rebound and capital is available, providing opportunities for NAI Members and clients. Dr. Linneman discussed the resurgence of US CMBS that is creating increased refinancing opportunities but cautions that the picture may change dramatically starting in 2015. A white paper examining this topic was distributed at the NAI Global Market Outlook.

Please find an excerpt below and click here to read the full document.

When CMBS began in earnest in the early 1990s, it was a new source of capital for real estate. This mostly 10-year mortgage source resulted in a period of rollover refinancings a decade later in the early 2000s. Through 2007 there were more CMBS issuances than a decade earlier, indicating that all of the CMBS debt issued in the 1990s was refinanced and new CMBS loans were originated. Then in 2009-2011, more loans came due from a decade earlier than were financed, due to an effectively dead CMBS origination market. In 2012 and 2013, neutral financing occurred as CMBS loan volume roughly equaled CMBS issuance a decade earlier. Of course, not all of the CMBS issued a decade earlier is still outstanding at maturity, as some debt was defaulted upon or restructured. But as a first approximation, decade-over-decade issuance provides an indication of whether CMBS is a net provider of mortgage debt.

In 2014, it is likely that CMBS will be a net positive source of debt, as issuance will approach $100 billion, versus $93.2 billion in 2004. However, 2015-2017 looms as an enormous negative financing window, even if CMBS issuance continues to grow. This is because the amount of CMBS issued from 2005-2007 is literally off the charts from a historical perspective. In 2005, $169 billion of CMBS were issued, followed by $202 billion and $230 billion in 2006 and 2007, respectively. Even if in 2015–2017, $120 billion is issued annually, there will be a shortfall of roughly $240 billion during this window. Thus, 2014 promises to be the refinancing calm before the refinancing storm of 2015–2017.