CMBS issuance surprises market bears

Volume on track to surpass 2016 levels

Clockwise from top left: The GM Building, the Mark Hotel and 731 Lexington Avenue (Credit: Macklowe, Twitter and Vornado)
Clockwise from top left: The GM Building, the Mark Hotel and 731 Lexington Avenue (Credit: Macklowe, Twitter and Vornado)

For much of 2016, real estate finance types worried that new risk retention rules would put a sizable dent in the Commercial Mortgage Backed Securities market. It seems those fears were overblown.

Between January and July $47.4 billion in new CMBS debt was issued, according to Commercial Mortgage Alert, up from $37.9 billion in the same period last year. And the trend looks set to continue: for September alone $16 billion in new CMBS are ready to be sold.

The risk retention rule, which went into effect in December, requires issuers to keep 5 percent of bonds on their books. “At the end of last year, there were a lot of folks who were saying we may not get to what we did in 2016,” Robert Grenda of Morningstar Credit Ratings told the Wall Street Journal. “There was some real concern about risk retention.”

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But while the rule pushed some smaller firms out of the business, larger issuers quickly adjusted.

CMBS volume for 2017 will likely still fall short of the 2015 total of $106.2 billion. In 2007, CMBS firms sold a record $314 billion in new bonds. [WSJ]Konrad Putzier