As Much As $165B in CMBS Expected to Close Next Year

Next year the Kroll Bond Rating Agency expects private label CRE securitization issuance to total between $150 billion and $165 billion, compared to $149 billion anticipated for 2021 which would be more than double 2020’s volume ($62.2 billion) and significantly above 2019 issuance of $116.1 billion.

The third quarter, in fact, saw an uptick in CMBS loan origination activity, accounting for 17.6% of loan closings, an increase over the prior quarter as well as year-over-year. Around $77.1 billion in CMBS loans have been issued so far this year, according to CBRE. 

There are several reasons for the steady forecast for next year, despite the current uncertainty imposed by the Omicron variant. In general, COVID infection rates are slowing while economic activity continues to increase and interest rates remain historically low.

In addition, the firm is forecasting the securitization market will capture some

refinancing activity among the $80 billion of 2022 CMBS loan maturities, as well as CRE CLO transitional loan refinancings.

KBRA is looking for multifamily CRE CLO exposure, which increased to 60% from up to 50% in prior years, to remain high, although there could be rising exposure to other property types.

In the coming year, KBRA says industrial and multifamily are expected to remain the major property types, financed mainly with floating rate debt as in 2021.

“Overall, we expect healthy industrial and multifamily origination volume, while nonessential retail may continue to face challenges. Hotels in gateway cities, which have been more severely impacted by the pandemic, may experience some increase in loan originations, but on a selective basis. Office is likely to experience some weakening in 2022 and beyond, reflecting the ongoing shift toward hybrid work, which may weigh on demand,” the bond rating agency said.

On a cautionary note, KRBA warned as CRE performance typically lags, there could be  meaningful downgrade activity for the remainder of 2021, which could carry into 2022, although at a slower pace.

KBRA downgraded 585 ratings across 116 transactions between March 2020 and month-end October 2021, which impacted 11% of the total CRE ratings outstanding before March 2020. Most of the ratings downgraded (56%) were already rated below investment grade prior to the pandemic. In total, the AAA through A category-rated classes have maintained their ratings 97% of the time.