Banks will be better buyers of CMBS supply once new origination volumes pick up this year, according to a JPMorgan Securities report.
In the report, analysts explained that banks significantly increased their appetite for CMBS risk over the past few months.
According to regulatory filings, the total face value of CMBS held by banks increased by more than 25% or $11.5 billion over the first three quarters of 2011, the report cited.
Smaller institutions increased their overall CMBS exposure by 40% relative to 19% for the four largest banks.
"We expect bank demand for new issue paper – particularly 5-year bonds – to remain strong this year," said JPMorgan analysts in the report.
However, banks had limited paper to access last year. Figures reported by the bank showed the balance of commercial mortgages held on-balance sheet declined by 6%, more than $87 billion, in the first three quarters of 2011.
The forecast for 2012 issuance volume is expected to improve and will get a boost by refinancing demand from legacy loans, which analysts said serve as a source of both collateral for new issue and stress on the legacy CMBS market.
Around $51 billion of the current legacy loan CMBS volume is expected to mature this year, JPMorgan analysts estimated.