CMBS Issuance, Payoffs Up

Despite a “sluggish” start to the year, private-label commercial mortgage-backed securities volume finished the first half at $34.4 billion–up 27.8 percent year-over-year, reported Kroll Bond Rating Agency, New York.

More than half of that issuance volume–$18.2 billion–was generated in May and June, said KBRA Senior Director Larry Kay.

“A slowdown doesn’t appear to be in the cards for July as the forward pipeline remains robust,” Kay said, noting more than a dozen single-borrower deals slated to launch through July as well as six conduits and up to three commercial real estate collateralized loan obligations.

KBRA’s CMBS Trend Watch report noted that CRE collateralized loan obligations are gaining popularity as investors reach for higher-yielding floating-rate paper. “With higher demand for these deals, issuers have received attractive pricing, which has brought more players into this space,” the report said. “This could end up being the strongest CRE CLO issuance year post-crisis.”

KBRA predicted at least five CRE collateralized loan obligations in the third quarter, “and there are market rumblings that there is the potential for a few more.”

Morningstar Credit Ratings, New York, said the payoff rate of maturing loans in CMBS remained below 70 percent for the second consecutive month in June. The payoff rate ticked up 90 basis points to 65.8 percent. While 11 loans with balances above $100 million paid off during the month, three large multifamily loans that did not lowered the overall payoff rate and pushed the multifamily rate to its lowest level since December 2014.

As the maturity wave winds down, Morningstar believes that the payoff rate–currently 70.3 percent for the year through June–will drift lower, “[because] many maturing loans remain overleveraged.” Morningstar projected 2017 will finish with a payoff rate between 65 percent and 70 percent.

CMBS loan prices posted a small increase in May–the most recent data available–said DebtX, Boston. The estimated price of whole loans securing the CMBS universe increased from 98.7 percent at the end of April to 98.9 percent in late May, DebtX Managing Director Will Mercer said.

“The modest increase in loan prices in May was due to a decline in both the base market spreads and U.S. Treasury yields,” Mercer said.