Given that it is coming up to a year since I posted a blog (CMBS – it’s time to dance to the beat!) in which I surmised that “I don’t just want to see CMBS hit the dance floor – I want to see it win a contest!”, now would seem an opportune time to reflect on whether CMBS has lived up to any semblance of this hype.
Indeed, if we extended this metaphor for the purposes of considering the products achievements for 2015, it would be fair to say that although CMBS did not win any contest, it definitely began to dance. In fact, not only did CMBS hit the lyrical dance floor and bust some moves, it actually began to break dance before the music was rudely turned off and the lights switched on.
Given the burgeoning confidence displayed by CMBS, the August flicking of the metaphoric switch could not have come at a worse time. At this point of the year, CMBS was in a great place, given that with at least a third of the year still to run (which historically is also the busiest period) the volume of primary issuance had already equalled that of 2014. Furthermore, major structural innovation had also been achieved, the most pertinent of which was the emergence of the inaugural pan-European deals since the global financial crisis (GFC). Finally, further confidence was engendered by the fact that the market saw the first deals since the GFC that were backed by assets located in Ireland and Belgium as well as the launch of JPMorgan’s maiden CMBS 2.0 deal.
In light of these achievements, it is hugely frustrating that those adverse macro-economic factors caused by concerns over a Grexit and the Chinese financial crisis brought about the premature shutdown of primary CMBS issuance for the year. Indeed, had the CMBS product been allowed to continue to party, there is every chance that we would have witnessed some pretty impressive innovation. The hard reality, though, is that the idiosyncrasies of investing in a capital markets instrument such as CMBS prevailed and with it, we learnt that there is clearly some way to go until CMBS 2.0 can be considered a strong, robust and reliable financing instrument that is capable of weathering a capital markets storm.
Turning the spotlight to 2016, it would be fantastic to see the resumption of primary issuance and a return to continued innovation, with a particular emphasis on the emergence of those structures that are capable of featuring a greater number of loans (see The renaissance of European multi-loan CMBS). Having said all that, given the lack of issuance over the past few months, in the immediate term I would just be happy to see CMBS dance and if that means that CMBS 2.0 is merely throwing some groovy shapes on the dancefloor – with no contests in sight – then so be it!