Wall Street banks face an influx of borrowers seeking commercial property loans in the wake of the Federal Reserve’s decision to maintain the pace of its stimulus measures, according to JPMorgan Chase & Co.
With interest rates falling since the central bank announcement, after a surge that started in May when Fed Chairman Ben S. Bernanke indicated policy makers could taper $85 billion in monthly bond purchases as soon as September, issuance of commercial-mortgage bonds is poised to increase, according to JPMorgan analysts led by Ed Reardon.
“Both refinance volume and transaction volume will pick up as borrowers seek to lock in lower rates ahead of the eventual tapering decision,” the New York-based analysts said in a Sept. 20 report.
The extended period of low rates, a boon for property values, could strain investor appetite for securities linked to everything from skyscrapers to strip malls, according to JPMorgan. The bank is forecasting $77 billion in sales this year, with about $56.7 billion offered to date, the report said.
The market for new commercial-mortgage backed securities reopened in 2010 after slamming shut when credit markets froze in 2008. The amount of debt paying down during the past five years outstripped the pace of new issuance, boosting demand, according to JPMorgan. That pattern is set to reverse as issuance rises. Sales are poised to double from last year’s $42 billion, according to data compiled by Bloomberg.
“Net supply is now less of a tailwind for the market relative to the period when the CMBS market first reopened,” the JPMorgan analysts said.
© Copyright 2024 Bloomberg News. All rights reserved.