KBRA releases the May 2024 issue of CMBS Trend Watch.

Heading into CRE Finance Council’s (CREFC) midyear conference, an overarching theme may be the resurgence of CMBS private label issuance. In May, 14 deals comprising $9.3 billion of issuance priced, representing a year-over-year (YoY) increase of 158.9%. We do not expect the summer doldrums to slow issuance as we move further into June. Based on current visibility, there could be up to 14 deals that launch in June, including up to eight single-asset single borrower (SASB) deals, five conduits, and one commercial real estate collateralized loan obligation (CRE CLO) deal.

In May, KBRA published pre-sales for six deals ($4.3 billion) including four single borrower (SB) ($2.7 billion) and two conduits ($1.6 billion). May’s surveillance activity included rating reviews of 614 securities issued in connection with 51 transactions. Of the 614 ratings, 580 were affirmed, 21 were downgraded, and 13 were upgraded. In addition, 50 ratings were placed on Watch Downgrade and five ratings were placed on Watch Developing. The activity was effectuated across 51 transactions including 32 conduits, nine SBs, seven Agencies, two re-remics (RR), and one CRE CLO deal.

CMBS has undergone a marked change on several fronts after the global financial crisis (GFC), particularly in recent years. Originations were being conducted as early as two years ago in a near-zero fed funds environment, which has climbed to over 5%. The absolute level of interest rates has resulted in a meaningful shift to shorter-term loans, as well as reduced issuance, with 2023 volume of $19.7 billion the lowest since 2010. While volume has ramped up this year, it is still relatively suppressed. Unsurprisingly, higher rates and lower volumes of originations have contributed to lower leverage. Notably, some property types were exposed to unprecedented stresses through the pandemic, with immediate, shorter-term impacts on retail and lodging, and fundamental changes to office that will have longer-term impacts. In the Spotlight section, we examine how the product has evolved regarding the term, leverage, and property type mix, as well as credit enhancement (CE) trends and increased pool concentration.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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