Morningstar: CMBS Fundamentals Remain Sound but Issuance Unlikely to Exceed 2015 Levels

According to a recent report from Morningstar Credit Ratings, CMBS fundamentals remain sound across all property types. However, new issuance is unlikely to exceed the $101.01 billion amount seen in 2015, which was up 7.4 percent from the previous year. According to Morningstar, “The widening of CMBS spreads has introduced tremendous pricing uncertainty to the loan origination process and caused CMBS lenders to throttle down origination of loans for securitization.” Furthermore, market participants expect CMBS spreads to widen in December once risk retention rules take effect, thereby requiring issuers, or a designated non-investment grade buyer, of mortgage securitizations to retain 5 percent of every deal. New issuance through March 11, 2016 amounted to $13.6 billion, whereas new issuance during the first quarter of 2015 amounted to $27.01 billion.

Morningstar expects delinquency rates to remain relatively low in most markets, with the exception of those that have significant exposure to the oil and gas industry. As of the end of January 2016, the delinquency rate was at its lowest level since 2009, standing at 2.9 percent, and well below its historical high of 8.53 percent in May 2012.

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