U.S. commercial mortgage-backed securities (CMBS) issuance has gradually recovered from near dormancy to a period of sustained, if modest, growth, according to a recent report published by Standard & Poor's (S&P) Ratings Services.
Aggregate issuance for 2011 was $32.7 billion, lagging behind S&P's previous forecast of $35 billion by approximately 7%. For 2012, S&P is again projecting $35 billion in CMBS issuance.
‘With the resumption of issuance in 2009 and its continued expansion in 2010, we had expected a substantial rise in issuance in 2011,’ says David Mollin, S&P credit analyst. ‘Although activity did increase markedly early in the year, the pace of issuance has since slowed amid the uncertainty and volatility resulting from the European debt crisis and other macroeconomic events.
‘While we expect global economic headwinds to temper the near-term expansion of CMBS issuance,’ Mollin continues, ‘commercial real estate fundamentals, including rental rates, occupancy levels, valuations, and other operating metrics, have improved modestly in recent years, and we believe securitization will continue to play a significant role in the sector's recovery.’
Furthermore, S&P expects downgrades to continue to dominate U.S. CMBS rating actions this year.
‘As with the overall delinquency rate, we expect the significant volume of maturing loans to be a major driver of the downgrades,’ Mollin adds. ‘However, the ongoing recovery in commercial property markets may have a moderating influence on performance and slow the overall pace of downgrades.’