04/20/2012

Lending Rebound Bolstering CMBS Pipeline

Commercial MBS issuance is picking up steam.

After a slow first quarter, volume is now on track to reach $20 billion by midyear. That would surpass the $17.1 billion of activity in last year’s first half and put the sector on pace to exceed the $38 billion annual issuance forecast by a panel of bond pros.

Ten more transactions totaling $11.8 billion are expected to price by midyear, according to a review by Commercial Mortgage Alert (see Page 18). Coupled with the $3 billion of transactions that have already priced this month, second-quarter volume would total $14.8 billion — more than double the $6 billion of first-quarter activity.

The pipeline through June 30 contains eight multi-borrower transactions totaling $10.2 billion, a $1.4 billion single-borrower deal and a $200 million distressed-loan securitization. By month, that breaks down to $2.9 billion for the rest of April, $2.9 billion in May and $6 billion in June.

The pickup in activity reflects somewhat better lending conditions for CMBS shops in recent months. What’s more, lenders said borrower inquiries have increased steadily over the past few weeks, raising hopes for a busier second half.

While multi-borrower deals continue to account for the lion’s share of CMBS issuance, volume could get a boost from single-borrower transactions. A handful of such offerings are in the preliminary planning stages. The one firmly in the pipeline will be backed by a $1.4 billion mortgage that Goldman Sachs originated for General Growth Properties on the Ala Moana mall in Honolulu. Goldman originally was expected to securitize only the $1.1 billion senior portion, but now the buzz is that the whole loan will be packaged. The deal is slated to hit the market next week, with Goldman as lead manager and Citigroup as co-manager.

Volume could also get a boost from the re-emergence of transactions backed by distressed mortgages. Two weeks ago, Rialto Capital floated the first such transaction in 15 years (see Initial Pricing on Page 22). A partnership between Blackstone and Square Mile Capital has a similar transaction scheduled for May. And other holders of distressed assets are also expected to consider tapping the CMBS market for financing.

“It’s a bright spot for the market,” said one high-yield player. “We’re going to see many more of these deals crop up. Every community and regional bank could potentially come into play in this space.”

But distressed-loan transactions by their nature will be relatively small — the face amount of the Rialto deal was only $132 million. So the potential benefit to volume is limited.

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