Just like the movie, food falling from the sky seems too good to be true at first but there can be a downside, especially when the food is so big it has damaging effects! CMBS origination volumes started out at about $15 Billion a year in 1995 and rose to an all-time high of approximately $230 Billion in the year 2007. The amount of CMBS loans originated in the years 2005, 2006 and 2007 combined equal approximately $600 Billion! Then of course, everything screeched to a halt in 2008. The below graph shows clearly what has happened over the past 10 years in CMBS origination:
So, by 2013 the forecast for CMBS was sunny and a panel of CMBS experts predicted that the origination volume would exceed $65 Billion ~ well on our way to what was originated 10 years ago!
Based on the first half of 2013, these predictions were increased to over $85 Billion, which is almost up to 2004 volumes! The first half of 2013 was the highest first half totals since 2007, the last year of the boom market!
This new CMBS origination is necessary for the refinance of all the loans coming due in the next few years. But, like all weather forecasts – especially in the great state of Texas where 1st Service Solutions is – they can and do CHANGE! And the forecast for CMBS was recently changed from sunny to cloudy due to the instability in the interest rate environment and subsequent volatility in the bond market which caused CMBS bonds to trade at wider spreads than anyone expected. In fact, approximately $2 Billion of CMBS was scheduled to be securitized by June 30th and was delayed indefinitely due to market volatility. Hopefully the clouds will disappear soon and we will go back to sunny skies!