NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases the 2020 CMBS Outlook: This Time Is Different?, which examines and provides forecasts for issuance activity and credit ratings in the new year. The report also provides a review of the current lending environment, property fundamentals, and underwriting standards in pre- and post-crisis CMBS.
The 10-year Treasury fell to a year-to-date low of 1.47% in Q3 2019, levels not seen since 2016. This likely contributed to the rise in Q3 2019 conduit volume as commercial real estate (CRE) borrowers sought to lock in long-term rates. In addition, with the increase in conduit issuance, we could see some of the potentially smaller single-borrower (SB) loans ending up in conduit executions.
We expect CMBS volume will end 2019 somewhere between $86 billion and $91 billion, which would easily exceed the full-year 2018 level of $75 billion. Looking ahead, we believe 2020 issuance could rise to about $95 billion, of which conduit totals $52 billion, and SB $43 billion. For CRE CLOs, we project a year-end 2019 issuance volume of $19 billion-$21 billion before rising to $25 billion in 2020. Our projection factors in recent CRE sales, forecasted CRE allocations as well as the competitive landscape.
KBRA expects a continuation of the strong lending competition in 2019 to extend into the coming year and influence overall securitized volume as well as credit. But while CMBS loan originators maintained discipline for much of 2019, we have observed increases in the loan-to-value (LTV) as well as full-term interest-only (IO) exposure during the fourth quarter. This begs the question of whether “this time is different.”
To view the report, click here.
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.