Beginning in the summer of 2015, the Commercial Mortgage-Backed Securities (CMBS) market ran into a headwind of interest rate volatility, commodity price collapse, investors unease and regulatory burdens. As a result, the new issuance volume for CMBS has slowed dramatically. Once estimated to top $100 billion in new issuance in 2016, the new forecasts are coming in as low as $40 billion. The market is clearly struggling to find firm ground on what has been an earthquake of challenges.
Investor demand has shrunk as the volatility in pricing and concerns about decreasing loan quality has begun to impact issuers. B piece, known as first loss investors, have also flexed their muscles more by kicking out an increasing amount of loans they are unwilling to include in new issuance.
Similarly, issuers, such as the major conduit banks, are expressing reservations due to Regulation AB II, which became effective in November 2015. The regulation requires issuers to be much more transparent about the collateral included in a securitization, including a CEO certification regarding its accuracy. This puts the CEO of an issuer at risk at a corporate and, ultimately, a personal level.
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