Why It May Be Now Or Never For The CMBS Industry
Many of us remember pedaling our bikes up the steepest hill in the neighborhood as kids. There was that brief moment of satisfaction at the crest and the thrill of the descent. But soon, you were at the bottom and facing a steep climb back up if you wanted that rush once more.
According to Hunt Mortgage Group managing director Barry Polen, the current state of CMBS lending is akin to that childhood staple.
Barry tells Bisnow that after a significant lull, demand has returned for loans originated by CMBS lenders, but that the boom times will be fleeting.
“One of the recent themes in the market has been the increased issuance of CMBS," Barry says. "In late 2015, predictions had called for more than $100B of CMBS deals to hit the market this year. There was a rough opening to 2016, but things have settled down and production has elevated as a result."
While predictions of 2016's market size got as low as $50B to $60B, the $9B and $13B of deals in October and November, respectively, have turned 2016 into a strong, late bloomer. The market should end with an annual volume in excess of $70B.
What's the reason for the Q4 surge? Barry says the answer is simple: There is once again demand for CMBS.
"CMBS has become attractive to fixed-income investors for two reasons,” he says. "First, the asset class underperformed other competing investments in the middle part of the year, making CMBS look relatively attractive."
Barry also credits the yield curve, in which longer-term yields rose more than shorter yields. With the steeper curve, CMBS became attractive as it is one of the longest-structured product securities available.
Although CMBS has made a grand return to the forefront of investors' plans, the option is likely to lose some luster sooner rather than later.
“New risk retention rules are going to be setting in at the end of December, and no one is confident about appetite for originators to make CMBS loans once the regulations are in place,” Barry says. He also cautions that borrowers' motivations for financing will naturally lessen with the increased financing rates we have seen since the presidential election.
The moral of the story? If you're considering a CMBS loan, your window of opportunity is narrow.
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