Outstanding CMBS: Down 25% and Still Falling via Commercial Mortgage Alert

The balance of outstanding U.S. commercial MBS continues to fall, as issuance lags behind the pace at which seasoned paper is being retired.

The balance last month dipped below $600 billion, down 25% from the peak of almost $800 billion at yearend 2007, according to Trepp. And as the universe has shriveled, so has the CMBS share of the fixed-income market. CMBS now makes up just 2% of the widely followed Barclays U.S. Aggregate Bond Index, well below the high of about 6% in early 2008.

The steadily decreasing volume of CMBS in the hands of investors hasn’t yet sunk to an alarming level, analysts said. Indeed, the pinch in supply has even served to prop up prices on recent offerings.

But the decline is certainly not a sign of the sector’s health. And market pros said the risk is that the balance will eventually fall to a level too low to sustain the interest of investors. “I think it’s in the back of everybody’s minds,” said Richard Parkus, a CMBS analyst at Morgan Stanley.

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