Bank of America Merrill Lynch has cut its 2014 forecast for issuance of commercial mortgage bonds in light of the unexpectedly slow start to the year.
Gross issuance of conduit deals those backed by multiple loans is currently on par with that seen last year at this point in time, according to the report: including two deals totaling about $2 billion that are currently in the market and are expected to price next week, issuance for the year stands a bit over $21 billion.
“Although we anticipate that there could be an uptick in issuance in the second half of the year relative to the first half, we don’t think it will be significant enough to meet our previous conduit gross issuance forecast of $80 billion,” the report stated. “Instead, we think it is more likely that by the end of the year gross conduit issuance, although it should exceed last year’s volume, will only reach about $60 billion to $65 billion.
That level would still be higher than the amount of CMBS issued in 2013, however.
And the amount of commercial mortgage bonds issued is expected to exceed the amount being paid down for the first time since 2007. Bank of America Merrill Lynch puts net conduit issuance at between $3 billion and $5 billion in 2014.
“With 10-year Treasury yields recently hovering in the 2.50-2.60% range, it may be that some of the impetus has abated that borrowers and special servicers felt last spring, when rates jumped by 100 basis points,” the report states. “As a result, not only have voluntary prepayment rates slowed from the levels seen late last year/earlier this year, but liquidation volume has slowed as well.”
In March, Bank of America Merrill trimmed its forecast for issuance of single-borrower commercial mortgage securitizations this year, by $5 billion to $20 billion, citing the increased use of pari passu structures to divide very large loans up into multiple conduits; at the time, it left its forecast for overall issuance unchanged.