A few small triple-A CMBS bid lists came out late last week, but overall the quiet week was capped off by an innovative touch in the Deutsche Bank floating-rate deal that added a new layer to the concept of the A/B structure.
"The A-B-C' structured deal by Deutsche Bank proves that creativity continues in the commercial mortgage market," said John Bonfiglio, head of CMBS research at Fitch Inc.
The floating-rate deal was first cut into A/B loans, split into two pieces, and then split into three pieces.
More than anything else, this points to the fact that there is still inventiveness in this maturing market despite the fact that origination is at a low and consolidation continues.
"With rates being up relative to where they were and a lack of natural refinancings, I think it is just the cyclical business that is causing volume to stay down," Bonfiglio added. "Relatively few loans were born ten years ago."
In addition to the fact that the amount of product coming due for refinancing is at a low, more floating that fixed-rate deals are coming into the pipeline, and overall origination is down. Moreover, in the equity markets, real estate investment trusts and other properties are not trading quite as much, so the result is that less financing is needed overall.
"A lot of the floating-rate stuff is shorter," said the head of a CMBS desk. "So that is actually setting up more pipeline for the next couple of years."
Over the next two months, Fitch predicts another $8 billion will make its way into the market, followed by another $18 billion domestically for the next four months.
"But still, a handful of players dominate," said another source. "The fixed cost of operating the business is such that if you're not doing a few billion a year you have to question the risk/reward profile. As in any other business, CMBS is going to consolidate."