Bank of America Securities has increased its issuance forecasts for the US commercial mortgage-backed securities and commercial real estate collateralized loan obligation markets, with the firm forecasting about $145 billion to $155 billion of new single-asset/single-borrower, conduit and commercial real estate collateralized loan obligation deals by year-end.
The bank’s previous forecast was in the range of $125 billion to $135 billion, but Alan Todd, a managing director and head of CMBS strategy, raised the projections due to a strong year-end pipeline. There are about $24 billion of new deals that are slated to be completed by the end of December.
Bank of America is projecting a similar amount of issuance in 2022. “We think issuance next year will largely follow the path set this year, due to improving [commercial real estate fundamentals], heavy acquisition activities and a large number of transitional assets coming out of covid-19,” the report stated.
SASB, CRE CLOs see the love
While issuance is set to exceed the bank’s projections, Todd noted that only SASB and CRE CLOs are expected to see a greater-than-expected number of transactions.
The bank raised its expectations for SASB issuance from $60 billion to $70 billion, with about $57.4 billion completed year-to-date, and boosted CRE CLO issuance to $45 billion to $50 billion from $35 billion to $40 billion. So far this year, there’s been about $37.1 billion of CRE CLO issuance to date.
“We expect to end the year at the top of the range,” Todd said.
Projections for the conduit market, on the other hand, remain unchanged at $30 billion to $35 billion, with year-to-date issuance of $22.8 billion. The bank is particularly bearish on conduit issuance into next year as more borrowers are drawn to CRE-CLO and SASB executions. Additionally, many of the sectors that have traditionally been collateral in conduit deals continue to face stiff demand headwinds.
“Despite the significant rebound in economic and broader origination activity this year, the pace of conduit issuance has been roughly in line with that from 2020,” Todd said. “As we look to next year, we see several impediments that could limit the extent to which conduit issuance increases.”
SASB and CRE-CLO issuance should continue to increase after historic gains in the past year, and BofA remains overweight on these securities, Todd added.
Office: A flight to quality widens gap between haves and have-nots
The report pays special attention the office market, where an increased demand for new, high-quality offices to lure workers back to in-person work has left the more ordinary, or commodity, offices out in the cold.
Todd cited third-quarter data from JLL that found that newer office buildings delivered since 2015 were the only cohort that has seen positive net absorption over the past six quarters. At the same time, all older vintages experienced negative net absorption to various degrees. “This wide divergence in tenant demand based on building age highlights the notion that the flight to quality trend in the office market has continued to intensify,” he said.