Earlier this month I set out my CMBS predictions for 2016 in the Investment Adviser (Broadening the scope of CMBS loan issuance), where I predicted that macro-economic conditions would continue to challenge the re-establishment of CMBS as financing tool for European commercial real estate (CRE).  Indeed, the first few weeks of the year have done little to alleviate these residual concerns given the renewed and heightened volatility in the Chinese capital market, the continual slide in the price of oil as well as the raft of disappointing UK economic data.  As was demonstrated during 2015, these factors have the potential to have a profound adverse impact on the pricing of CMBS bonds and with it, the ability to act as a metaphoric off-switch for primary issuance.  Despite these warranted notes of caution, it is therefore essential that CMBS market participants do not get too carried away with the headwinds of the potential of another financial crisis, but instead concentrate on those positive tailwinds that have continued to move CMBS along from being a financing myth to potentially becoming an integral financing instrument for European CRE.

Indeed, the most encouraging tailwind for the securitisation product, is the fact that simple, standardised and transparent securitisation is considered by regulators as one of the building blocks of a European capital markets union.  In order to achieve this, the European Commission has therefore published a legislative proposal for creating a European framework for simple, transparent and standardised securitisation (the so called Securitisation Regulation) which is currently making its way through the European consultation mill.  However for this to go from being a headwind to a tailwind, it is important that many of the structural nuances associated with CMBS as an asset class are addressed as currently this regulation does follow a similar direction as other well meant legislation such as Solvency II which has had the unwelcome effect of inadvertently penalising CMBS as an asset class.

Other encouraging CMBS tailwinds to be aware of include the fact that the geographical net of CRE assets financed by CMBS has greatly expanded in recent years, as has the complexity of the deal structures to include multiple loans in different jurisdictions.  Indeed, last year we saw the first Pan-European CMBS deals since the financial crisis which is an important milestone in the evolution of CMBS 2.0.

Taking into account these positive tailwinds, I therefore have four wishes for the European CMBS market in 2016.  Firstly, I wish that European primary CMBS issuance will shortly resume and that unlike 2015, we will witness a steady flow of deals throughout the year.  Secondly, although I acknowledge that this year will be challenging for the financial markets, it is nevertheless my wish that market participants do not get too carried away with those adverse macro-economic reports that are currently monopolising the global financial press.  Thirdly, I wish that the European regulators will appreciate the structural idiosyncrasies of CMBS as an asset class and therefore do not introduce measures that have the unintended consequences of penalising CMBS vis-à-vis other asset classes.  Finally, I wish that the European market experiences an exponential “boom” in CMBS issuance involving multiple loans, multiple jurisdictions and multiple arrangers.

Clearly only time will tell, whether any of these wishes will become true and indeed my fourth and final wish can justifiably considered rather fanciful, but that said, if the other three wishes  materialise, then there is no reason why my fourth and final wish cannot become a CMBS reality…….