Bank of America Cuts CMBS Outlook: Despite generally optimistic reports emanating from the Commercial Real Estate Finance Council’s annual meeting this month, Bank of America Securities came away from the convention reducing its prediction for the issuance of commercial mortgage-based securities.

“Increasing interest rates and expectations of slower economic growth have made it more difficult for borrowers and lenders — and buyers and sellers — to see eye-to-eye regarding the value of an asset or the amount of debt proceeds that will be available for a given loan,” Alan Todd, managing director and head of CMBS strategy for Bank of America Securities, wrote in his weekly report. “We therefore reduce our 2023 gross issuance forecast to $45 billion to $60 billion, down from $85 billion to $100 billion.”

Given the current interest-rate uncertainty, many borrowers have voiced a preference for shorter-term financing rather than a traditional 10-year loan, Todd said. That presents the prospect that the market could see multi-borrower CMBS deals with five-year terms, but those types of deals likely won’t become a long-lasting phenomenon.

“Obviously, our forecast can change if conditions improve or deteriorate or if interest rates fall, but we expect to the extent those events occur they will likely do so in the second half of the year,” Todd said.

Separately, Kroll Bond Rating Agency reported on talk at the convention of other difficulties getting multiborrower deals off the ground.

There were some concerns that creating such CMBS deal pools would be more challenging going forward, given investors’ lack of appetite for office and retail properties, and for multifamily properties constrained by cash flow due to slowing rent growth and increasing expenses.

Fitch Predicts More Downgrades: The bond ratings firm Fitch Ratings expects a greater number of revisions downward to negative from stable this year as worsening economic conditions — including rising interest rates, high inflation and slowing economic growth — contribute to a deterioration in creditworthiness.

Fitch expects property-level cash flows to decline from 2022 levels due to weakening demand, slowing revenue growth and increased expenses; as a result, Fitch expects to see more maturity defaults with heightened refinance concerns; market challenges relating to a shift to a new normal of flexible work protocols; and continued performance concerns in the retail sector.

Rating actions stabilized in 2022 with property-level cash flows recovering from their pandemic lows, improved valuations, more loans being resolved, and better-than-expected recoveries on sales.

The majority of the downgrades in 2022 were in retail, factoring in higher loss expectations on lower-tier regional malls with sustained or further performance deterioration and/or increased refinance concerns.

Some downgrades in 2022 also incorporated underperforming Class B and Class C office loans as a contributory factor. Fitch said it’s growing wary of older office properties with rigid layouts, for which demand is waning.