Signs of increased underwriting discipline dissolved in the first quarter, creating a challenge for U.S. CMBS investors, according to Fitch Ratings' Virtual Investor video series for U.S. structured finance.
The stabilization of credit quality in the first quarter was a "pleasant surprise" for the ratings agency and investors, but competition may be heating up and met with higher credit enhancement levels.
The first quarter was one of the largest on record for CMBS 2.0, putting new issuance in a position to hit $100 billion by the end of the year, Fitch managing director Dan Chambers said.
To help counterbalance potential for increased risk some CMBS B-piece buyers are being modifying or kicking out problem loans more aggressively, Chambers said. Large investors are also retreating from certain deals or demanding higher spreads to compensate for perceived credit quality issues.
Many new CMBS deals in 2015 will likely come from conduit issuance. Single-borrower issuance also started strong last quarter.
In some deals Fitch continues to be concerned about excessive leverage but Chambers indicated single-borrower asset quality has shown recent improvement, focused on strong office markets and hotel properties with more diversity.
