CRE liquidity has started coming back in 2024, according to Trepp’s 2024 year-end analysis, with lenders “re-opening their spigots” after a year that might have suggested otherwise. Almost every capital source stayed on the sidelines, but no longer.
In 2023, private-label CMBS issuance was stuck at $39.3 billion off issuance. In 2024, the amount jumped nearly 165% to $104.05 — the single-largest year-over-year dollar increase since 2005 and a time when frothy markets were about to implode during the Global Financial Crisis.
The biggest force, accounting for two-thirds of CMBS issuance, in 2024 has been single-borrower transactions. These were “overwhelmingly” floating-rate loans, not fixed-rate. They reflect the expectation that the secured overnight financing rate (SOFR) will peak and decline.
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As expectations go, that last part isn’t a given. However, projections from Chatham Financial and Derivative Logic both show various SOFR rates continuing to fall through 2025 and then starting to rebound in early 2026. So, it may be that as far as 2025 goes, this is a reasonable expectation.
Much of the activity was driven by refinancings, which might not be surprising given the “relative slump in property sales” and the broad recognition that many deal maturities have required new financing. Of the issuances, 18 were larger than $1 billion each.
Of the 39 conduit deals, 28 were backed by five-year mortgages—a “relatively new phenomenon” according to Trepp, likely due to owners wanting to avoid higher interest rates for 10 years.
Looking more at refinancing CMBS conduit loans, Trepp noted that $96.83 billion of them will mature by the end of 2026. By then, the entirety of commercial mortgages will see the maturity of a total of $1.78 trillion in loans.
This is where one of the major complications and risks comes up. Lenders will likely stay cautious, limiting financing and requiring greater property cash flows. A return of liquidity doesn’t mean recklessness.
Loans expected to mature over the next two years likely were originated in 2014 through 2016. Weighted average coupons for those loans were in the mid-4% range. Those from 2023 and 2024 range from mid-6% to low-to-mid-7%.
The higher the interest rate, the greater the percentage of loans with DSCRs of under 1.25, so below the minimum generally required by lenders. At 5.50% its 14.60% of the total loan balances. Move up to 6.50% loan rate and the portion under 1.25 DSCR is 18.60%. Go further to 7.50% and a quarter of the loan values don’t meet the minimum DSCR.
This makes a lot of refinancing questionable. “Based on today's underwriting, many property owners with maturing loans do not qualify for conventional refinancings,” Trepp wrote. The biggest problems outside of office are multifamily loans originating between 2021 Q2 and 2022 Q2.
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