AFIRE: $65bn of US CMBS issuance predicted in 2011

After hitting an all-time low of just $2.7bn of new CMBS issuance in 2009, the securitisation market is expected to originate up to $15bn per quarter in new deals, with large portfolio refinancings pushing the figure up to $65bn.

CMBS issuance in the US could more than quadruple this year with expectations securitisations could hit a post-crisis peak of $65 billion from a low of just $2.7 billion in 2009.

Delegates attending the final day of the Association of Foreign Investors in Real Estate (AFIRE) winter conference heard that the commercial mortgage-backed securities market in the US would roar back into life this year as credit spreads continued to tighten. In 2009, just $2.7 billion of CMBS was issued in the US compared to $11.7 billion in 2010.

However, according to Sheridan Schechner, co-head of Americas real estate investment banking at Barclays Capital, roughly $13 billion to $15 billion of new issuance was expected in the first quarter of 2011 – a figure likely to be repeated each quarter, even given rising Treasury rates. Coupled with several “significant” transactions currently in the market that would likely need refinancing in the securitised market, such as Centro Properties and Hilton Hotels, he said new issuance in 2011 could be as high as $65 billion. “Right now, we are seeing a pipeline that is huge,” he added.

Schechner warned though that CMBS deal flow would be dampened by the lack of B-piece buyers in the market, arguing that there were as few as three active participants today – H2 Capital Partners, BlackRock and Rialto Capital Management. Other firms were becoming bigger players, but he noted: “If you are going to have to funnel this much volume through three parties, it’s going to cause a real backlog at some point.”

The re-emergence of many lenders into the CMBS space, which is seen as critical to the recovery in secondary and tertiary property markets and has seen spreads narrow considerably in the past year, has prompted some critics to question whether a “frenzy” is taking place in the industry. Indeed, Glenn Grimaldi, executive vice president of HSBC, stressed that quality deal flow may not keep up with the capital markets’ ability to originate new CMBS loans. 

In addition, AFIRE delegates attending the New York conference were cautioned about the growing debate over how much of the CMBS pool originators should keep on their balance sheet. Under the US financial reform legislation passed in July, CMBS originators are required to retain 5 percent of the loan in a bid to better align interests. However, there are fears it could be watered down as the federal agencies write regulations for the new laws.