Bank of America Merrill Lynch has revised its forecast for issuance of single-borrower commercial mortgage securitizations this year by $5 billion to $20 billion, the bank said in a report published Monday.
The revision was driven by slower pace of single-borrower CMBS issuance so far this year. In total (both conduit and single borrower CMBS) the bank said it expected about $19 billion of private label gross issuance in the first quarter of this year, which the bank said “lagged last year’s issuance amount at this time.”
Part of the drag on single-borrower issuance volumes so far is that interest rates have stabilized, removing the need for borrowers to refinance to avoide a future increase. Another reason single borrower issuance has slowed is “the acceptance and increased use of pari-passu loans in conduit transactions,” which has “contributed to alleviating the need for them to be securitized in a stand-alone fashion.”
BofAML also noted that insurance companies are increasing lending, competing with CMBS originators for collateral. The increased competition means that the universe of loans available for conduit lenders is also at risk and could shrink. However, the bank said that it was still “too early to revise our conduit issuance expectations lower.”