CMBS Issuance Jumps to $24.6B This Year

Last year was not the most resounding for commercial mortgage-backed securities. It’s been different so far this year. How long that will last is uncertain.

Investors have snapped up about $24.6 billion of new commercial mortgage-backed securities so far in 2024, 170% more than the same period in 2023, according to data compiled by Bloomberg News. “Spreads on the riskiest portions of CMBS deals have been among the top performers compared to other widely traded types of credit.”

Fears of recessions and the higher interest rates that would assume them have been fading away. “A once-frozen market for office towers is seeing deals again,” is how Bloomberg put it. Some big investors like Don Peebles, chairman and chief executive officer of Peebles Corporation, have said there’s now a “once-in-a-generation opportunity to buy” office buildings.

It’s apparently an improving time for office credit, as well. Blackstone, for one, issued a “$2.35 billion, two-year, floating-rate, IO mortgage loan with three one-year extension options” CMBS deal, according to Fitch Ratings. “The mortgage will be secured by the borrower’s fee simple interest in a portfolio of 186 primarily industrial properties, comprising approximately 16.6 million sf located in 11 states and 20 markets.” About $2.1 billion goes to retiring previous debt, $59 million in closing costs, $13.1 in estimated upfront reserves, and $189 million in equity to the sponsor.

M-M Properties and Starwood Property Trust negotiated a $252 million loan on the TC Energy Center, an iconic Houston skyscraper that was close to default, as the Houston Chronicle reported.

“Investors have warmed significantly to commercial real estate this year,” TJ Durkin, head of structured credit and specialty finance at TPG Angelo Gordon, told Bloomberg. “It’s much different than the fear that characterized last year.” There’s some appreciation that office has started to look overly bludgeoned as a class.

Much of this reportedly is the result of the Fed being clear that it plans to drop interest rates, which is all well and good, but did these opinions come in before the Fed rather changed its mind, at least in terms of timing/? The central bank earlier this month started to seriously backpedal rate cut happy talk. Inflation, both in the Consumer Product Index and Personal Consumption Expenditures, has been proving itself more resilient than previously thought, and the jobs numbers have topped expectations. As a result, the Fed is signaling that expectations of immediate rate cuts are perhaps not sound.

Fed Chair Jerome Powell said in a question-and-answer session in Washington, D.C. that “recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence.”

Maybe things will blow over, or this recent market exuberance might be the case of investors not fully digesting that another change may be underway.