JP Morgan expects issuance of commercial mortgage bonds to continue to rise in 2015 to $105 billion, ahead heavy refinancing of existing deals.
Even more outstanding commercial mortgage bonds are due to mature in 2015 than in 2014. Moreover, expectations of rising interest rates is likely to spur some sponsors to refinance early, to lock in still low borrowing costs.
JP Morgan’s forecast expects to see growth in issuance of conduits, single borrower and multiborrower deals. Its most recent survey indicates that CMBS investors are broadly looking for supply growth next year, though a consensus has yet to form on the absolute level. Among the most popular responses, approximately 30% of investors expect private label issuance to total between $100 billion and 105 billion; 26% are looking for $110 billion to $115 billion, and 17% expect issuance to exceed $120 billion.
Despite this growth in issuance, demand is likely to remain strong; 80% of investors survey by JP Morgan are still looking to add or maintain their current CMBS exposure in 2015; investors demand is strongest for single borrower deals and the triple-A rated tranches of new deals.
So far this year, a total of $74.3 billion of private label commercial mortgage bonds have been issued, including the three deals - one conduit and two single borrower deals - totaling $2.3 billion that priced last week. In addition, one single borrower deal totaling $500 million is currently marketing.
CMBS underperformed broader markets last week, with spreads wider across much of the capital structure. Spreads on benchmark 10-year triple-A tranches of new deals were unchanged at swaps plus 86 basis points, with spreads on double-A, single-A, and triple-B tranches all widened by 10 basis points to end the week at swaps plus 152 basis points, swaps plus 197 basis points, and swaps plus 338 basis points, respectively.
“Despite this modest weakness, we continue to believe that new issue spreads are poised to tighten through year-end,” analysts wrote in a report published today. “Not only is the fourth quarter historically favorable for CMBS spread tightening, but the supply/demand imbalance remains a positive technical force in the market.”