CMBS Issuance, Spreads Increase

Private-label commercial mortgage-backed securities issuance volume remained strong through August with $9.9 billion priced, reported Kroll Bond Rating Agency, New York.

August deals brought the year-to-date total to $52 billion, up more than 41 percent year-over-year, Kroll Bond Rating Agency Senior Director Larry Kay said.

“The market didn’t provide for much beach time this summer–the combined pricing volume for July and August represented about a third of year-to-date volume,” Kay said.

KBRA predicted up to seven conduits and six-single borrower transactions could launch in September. “If these deals come to market by the end of the month, we could see the strongest third quarter since 2014, when issuance reached $27 billion,” Kay said.

Meanwhile, CMBS spreads continue to grow. “While last week’s rally in the broader equity markets resulted in all-time highs, spreads in the CMBS sector underwent some considerable widening,” said Trepp Analyst Catherine Liu. She noted new-issue CMBS cash spreads “inched out” by two to six basis points up and down the credit curve, with most of the widening coming from the single-A space.

Fitch Ratings, New York, released its quarterly property outlook on Monday. It said the office and multifamily markets are peaking, the hotel sector has peaked and the retail sector is declining.

“While the office market has grown steadily during the recovery and overall fundamentals remain positive, significant new construction activity is underway,” Fitch said. The credit ratings firm expressed concern about major markets approaching a peak with “unsustainable rent growth, high levels of development and lower preleasing rates.”

The multifamily market remains strong and demographics continue to favor it, but Fitch said it believes the sector is approaching a peak. Fitch said it expects to cap revenues at year-end 2016 levels.

Apartment rent growth peaked in 2015 at 5.8 percent and slowed considerably last year to 3.7 percent, Fitch said. Reis, New York, also predicted rent growth will continue to slow as new construction comes online and apartment owners offer more concessions.

Though hotel occupancy ended the first quarter up 0.5 percent year-over-year, Fitch expects it will flatten out and possibly decrease slightly later in 2017. STR, Hendersonville, Tenn., reported hotel occupancy has started to decline in 15 of the top 25 markets.

“Revenue per available room has remained positive due to average daily rate increases; however, ADR continues to grow at a decreasing rate,” the Fitch report said. Fitch expects U.S. hotel RevPAR growth to decelerate through the remainder of 2017 and remain “slightly positive” in 2018.

Increasing vacancy, minimal rent growth and continued store closings continue to weigh on the retail sector–thus its “declinging” outlook–Fitch noted. There have been more than 5,000 store closings through August and some analysts predict 10,000 store closings this year.

Class B malls–particularly those in markets with dominant malls or in secondary/tertiary markets with demographics insufficient to support multiple malls–remain the sector’s biggest concern, Fitch said.