Despite recent high profile CMBS prepayments, such as White Tower 2006-1 and 2006-2, market sources said 2007 should see the level of prepayments fall on the back of modest interest rate hikes and a slowdown in property value increases.
Over the past six months, the market has seen a slight decrease in prepayments. The interest rate increases seen over the past year have raised the cost of refinancing for borrowers and limited the chances of reduced interest rates on loans by refinancing. Borrowers who were looking to reduce their financing costs have done so by now, and according to Standard & Poor's, they are starting to prefer existing loan agreements because they would not necessarily be finding better terms on the market now. "Prepayments are another concern in CMBS transactions, but looking at all repayments, we feel rates should stabilize because the economic incentives to repay are reduced," said Hans Vrensen, head of the Barclays Capital European securitization research team.