H1 CMBS Issuance Almost 3X Over 2023

The first half of 2024 has been strong for CMBS, with domestic private-label issuance totaling $42.29 billion, according to Trepp. That is almost three times the $16.47 billion the same period in 2023 saw. It’s also up from $24.6 billion in the first quarter.

The number of deals in the first half of 2024 was 61, more than 2.4 times higher than the 25 in 2023. There was also a big difference in the proportions of conduit and single-borrower CMBS deals. In 2023, there were 12 conduit deals (56.91%) and 13 single-borrower deals (43.09%). However, in 2024 there were 14 conduit (28.77%) and 47 single-borrower deals (71.23%).

Of the single-borrower deals this year, more than 80% were secured with floating-rate mortgages. Given the increasing sense by many that the chance of a recession has dropped significantly, it may be that borrowers see this as a good bet, with little likelihood of an increase in rate and the chance of a downward reset. However, it is good to remember that single-asset, single-borrower bonds no longer look safe. And 40% of the single-borrower deals were against properties owned by Blackstone Group and its affiliates.

According to Trepp’s collected data, the first half of 2024 has already exceeded all CMBS activity in 2023. If CMBS issuance continues at this rate, the year’s total will easily surpass not only 2020, but 2016, 2018, and maybe 2017, although 2019 would be more difficult to match.

The first half of 2024 is at $42.29 billion, higher than the $37.02 billion first six-month average post-pandemic or $37.92 billion average over the last 10 years.

As Trepp noted, property owners and bond buyers last year were likely adjusting themselves to higher interest rates and lower valuations. That would have a two-part impact. One is that the lower valuations make for lower values of CMBS support. The other, higher rates would also make it tougher for buyers to get financing, especially with the bid-ask gaps of last year.

This year, buyers and sellers may “have accepted reality” and begun to do business in what might be a new normal for CRE markets, Trepp said. Unfortunately, that doesn’t give a reliable clue as to activity during the second half of the year. An interesting development has been the broader use of five-year mortgages, “which borrowers have demanded for the greater flexibility they provide relative to conventional conduit loans, which generally have 10-year terms.”