Maddox: The CMBS sector has had a few speed bumps this year – consequently, overall issuance is below levels that were projected at the beginning of the year. The market was hit hard by the unexpected BREXIT vote in the first quarter, which triggered significant fallout, and a number of CMBS issuers closed up shop in the spring. CMBS issuance activity recovered somewhat during the second quarter, then the market corrected again in the third quarter as Treasury rates increased some 40 basis points from July lows. At the same time, CMBS spreads widened due primarily to increased market volatility and also to the new risk retention requirements for CMBS issuers under Dodd Frank phasing-in during January 2017. CMBS issuance is now fairly steady, with new issues including risk retention tranches. However, overall volume is still far below pre-recession levels. Fortunately, commercial banks, life companies, debt funds and the GSAs have stepped in to fill the void, so financing availability remains good.

GlobeSt.com: What about the so-called “Wall” of looming CMBS loan maturities?

Maddox: As has been widely publicized, many of the CMBS loans coming due this year and next are 2006 and 2007 vintage 10-year loans that were aggressively underwritten during the “Bubble.” While CMBS delinquencies remain very low, there have been some recent increases. Many of these loans are now underwater or cannot be refinanced without new equity. Loans that were previously extended are also part of this population. The most challenging sectors will be retail and office, both of which have faced significant pressures due to technological disruption. Retail malls, especially older projects in secondary and tertiary markets, have faced tremendous pressure from e-commerce as major box stores such as Macy's and Sports Authority have retrenched or gone under. Office properties have come under increasing pressure as well. While other sectors such as multifamily have recovered, office vacancies have not improved as much. The average square footage per employee has plummeted as competing demand for creative office product has expanded, crowding out the demand for traditional space, and cloud file storage has replaced physical. Therefore, we expect some increase in delinquencies and foreclosures if these properties can't be sold or refinanced by the maturity dates.

GlobeSt.com: Do you feel we will see a downturn in the coming months?

Maddox: A lot of people are concerned about the prospect of another downturn and potential increases in non-performing loans. In fact, a recent Bloomberg survey of 31 leading economists predicts a recession in the U.S. economy in 2018. There are a number of signs that a slowdown is occurring in CRE valuations, but in my opinion, a wholesale collapse similar to 2008 and 2009 is very unlikely because the run-up in valuations has been fueled by global liquidity and good underlying fundamentals, as opposed to excessive leverage and speculation that occurred before the Great Recession. The biggest risk factor is rising interest rates; if this continues it could definitely put a damper on CRE valuations.