The commercial mortgage market, including commercial mortgage-backed securities issuance, has not been derailed by changing interest rates, despite the temporary slowdown when rates first started to rise. "Buyers have a tremendous bond appetite," said Edward Shugrue, chief executive of Talmage, a commercial-property debt investor.
A new forecast from Bank of America predicts that commercial mortgage-backed securities sales will slow in the second half of 2013, dragged down by rising interest rates. CMBS sales will reach $65 billion in 2013, according to the analysts, with $40.6 billion already sold. The new prediction is $10 billion less than the bank's analysts had previously expected.
The commercial mortgage-backed security market has done well this year, but questions are growing about its continued traction as interest rates are expected to rise. Right now there is about $7.5 billion worth of securities about to be marketed by banks.
Commercial-mortgage bond issuance might be slowed by as much as $15 billion this year due to rising interest rates, according to Standard & Poor's. The combination of an increase in Treasury yields and of higher yields on the best property-loan-linked securities will reduce the market's momentum, according to a report from S&P.
A number of troubling trends are developing in the commercial mortgage-backed securities market, Standard & Poor's said. A growing number of property appraisals are based on optimistic assumptions about future rent and occupancy, the credit rating agency said. "We continue to see instances where we believe that valuations are questionable, especially within the larger loans for certain property types, particularly office and hotel, in primary markets," S&P credit analyst James Manzi wrote in a report.