May CMBS issuance strong–insights from CREFC annual conference

CMBS Primary Markets

U.S Private label issuance continued its torrid pace in May with over $12.4 billion priced in the month making it the strongest that has been seen since early 2022. Issuance was dominated by SASB deals bringing in 13 of the 15 deals and almost $11 billion of the monthly volume. Year-to-date issuance for 2024 is nearing $40 billion, dwarfing the total issuance in 2023.

Much of the velocity of issuance is being driven by U.S. macro news related to inflation in May being in line with market expectations, lessened treasury rate volatility, and tightening credit spreads which allowed lenders and borrowers to align and get deals done. With the expectations for rate cuts shifting to fewer and later in the year, the mantra seems to be higher for longer prompting borrowers to move ahead instead of waiting given the aforementioned market conditions.

Source: Commercial Mortgage Alert, Morningstar Credit

Moving forward, the expectations are that there is more issuance to come as investor appetite remains strong with reports indicating that the deals issued in May were met with strong demand. According to the Commercial Mortgage Alert, the next two months will remain very active with visibility into over $13 billion of new private label deals in the queue for June and July.

CREFC Thoughts

Members of our team attended the Annual CREFC Conference in New York June 9th – 13th where almost 1300 CRE professionals gathered to learn, network, and share notes on the current market conditions. Sessions were very informative with CREFC and the Conference committee putting together timely and relevant content that benefited all.

The general mood seemed to be that the market is on solid footing with most feeling somewhat optimistic about where we are and expecting conditions to continue to improve for the foreseeable future. Obviously, property-type-specific risks like the secular changes in the office market and delinquency in CRE CLOs remain on people’s minds but even there some are seeing opportunities that may be generational chances to invest in the former according to some.

Interest rates remain one of the foremost topics on everyone’s mind and there were many discussions about how current treasury rate stability is helping get deals done. The mantra of accepting “higher rates for longer” was mentioned quite often as a reason for borrowers getting back into the water. That being said “higher rates are the new normal” was discussed and in a historical context the current market rate levels may not be unmanageable. Perhaps everyone has been used to rates being so low for so long that it is possible a reset of expectations is occurring as we move towards that future? It remains to be seen where rates end up in the long run but barring unforeseen events it is probably safe to say even when they go lower they will still be higher than recent past experiences.

Overall was a good conference and a good way to move on to what is hopefully a great second half of the year.