Fitch Forecasts Stable CMBS Issuance for 2013

Fitch’s forecast calls for relatively stable U.S. commercial mortgage-backed securities issuance in 2013.

"We expect 2012 CMBS issuance to finish at roughly $45 billion, with a slight increase to $50 billion as a possibility in 2013,” said Fitch managing director Zanda Lynn.

Risks to the CMBS forecast and commercial real estate financing include concerns about the tightness in the construction financing sector, according to Fitch’s report.

“Banks are not willing to—or are much more strict—on lending on real estate. So that is inhibiting the ability for developers to develop new product,” Fitch managing director and group head Huxley Somerville said, noting that this one aspect of risk in this sector.

Risks also will continue to vary by property sector, according to the Fitch report.

Multifamily will continue to be the strongest as 2013 gets underway, and analysts are “starting to see some areas of activity” in apartment building construction, Somerville said.

“That market has started to become more normal as far as construction demand activity,” he said.

Somerville also noted that the demographics in those age groups that tend to rent apartment units are strong.

When asked about risks in this sector, he noted that any demand driven by the weakness in the single-family market would falter if the single-family market strengthened.

Other than multifamily, the other sector that will remain relatively strong if economic or other risks to do not derail it is the hotel sector, he said.

"We expect that hotel [revenues] on aggregate in 2013...will reach what they were back at the peak of 2007," said Somerville.

However he noted that hotel performance historically tends to be “volatile.”

Hotel revenue “comes back quick and it also declines very quickly, so you have to be very careful with hotels,” Somerville said, noting that Fitch will be “questioning on an asset-by-asset basis whether that ‘return to peak’ income is actually sustainable.”

“We’re most negative in office, particularly office in the tertiary areas and suburban office,” said Somerville, noting that, “we have yet to see all the rents that were increased and signed in 2005-2007 roll yet.”

Retail, he said, “is obviously very much dependent on consumer confidence” which has “grown substantially over the last year.” However, “There are still question marks over some retailers’ strategies,” Somerville said.

Overall, he said, “We see the current trends continuing” and the outlook for 2013 is that it will be “another year of consolidation.”