A consensus among CMBS investors polled by J.P. Morgan suggests that the new issue market will continue to grow next year; on average, investors expect $90 billion in gross private label supply in 2014.
While the issuance forecasts in the survey ranged between $65 billion to $115 billion, two-thirds of participants believe that gross private label supply will exceed $90 billion in 2014. Approximately 30% project issuance of between $90 billion and $95 billion and roughly another third expect it to reach $100 billion to $105 billion, respectively.
J.P. Morgan published the results in weekly research distributed Nov. 15. It did not indicate how many respondents there were.
Even at $90 billion, 2014 issuance would likely surpass that of 2013, which J.P. Morgan said is on track to reach some $80 billion.
Analysts described the current pace of new issuance as “torrid,” noting that six deals (including 3 conduit, 2 floater, and 1 single borrower deals), had priced over the previous two weeks, bringing year-to-date private label supply to $67.5 billion.
“With an additional $4.4 billion currently in the market, November should easily set a new monthly record for new private label supply post-crisis,” the report stated. It said the record is January 2013, when $8.3 billion priced.
This heavy issuance has been accompanied by some spread widening, according to J.P. Morgan. It said legacy and new-issue CMBS spreads at the top of the capital structure have moved “modestly” wider over the past two weeks, with benchmark legacy A4s widening 7 basis points to swaps plus 172 basis points, while 10-year new-issue triple-As widened 1basis point to swaps plus 93 basis points.
Underwriting quality remains a dominant concern for CMBS investors surveyed by J.P Morgan; while 43% believe that current underwriting standards are most similar to those seen among legacy deals issued in the second half of 2005, a nearly equivalent percentage (41%) believe current underwriting is closer to that seen in 2006.
The booming CMBS market and large rate incentives have driven refinancings for loans in the ’03 vintage, and will do the same for ’04 loans. The outstanding balance of conduits issued in 2003 stood at $4.19 billion on Oct. 1, according to data compiled by J.P. Morgan and Trepp, down from $27.83 billion a year earlier. By comparison, there was $34.92 billion outstanding in conduits issued in 2004 at the end of October of this year, down from $45.04 billion at the end of October 2012.
