Non-Agency CMBS Posts Solid August Despite Late-Month Slowdown 

Non-Agency CMBS Market Overview

The non-Agency Commercial Mortgage-Backed Security (CMBS) market delivered another solid month in August with $7 billion in issuance across fourteen deals. Specifically, this CMBS market analysis reveals that deal flow was robust during the first two-thirds of the month. However, it ground to a halt as the calendar turned toward Labor Day. Consequently, exhausted market participants stepped away from their desks to salvage the final weeks of summer.

Total non-Agency CMBS issuance through August surpassed $78.7 billion. This continues to outpace last year’s numbers, which stood at $65.7 billion through the same period.

Source: Commercial Mortgage Alert, Morningstar Credit

Zooming out, the trailing twelve-month non-agency CMBS issuance now stands at $123.8 billion. This represents approximately $10.3 billion per month. Moreover, what is particularly noteworthy is how the market found and continues to maintain its rhythm after the volatility earlier this year.

As mentioned previously, April’s $3.3 billion remains a significant outlier. In contrast, the most recent four months have delivered consistently solid volumes. Therefore, this steady cadence shows the market has moved past the trade policy jitters that derailed April. While there continues to be a steady stream of headlines and stories, the market remains strong.

Source: Commercial Mortgage Alert, Morningstar Credit

Deal Composition Analysis

Single Asset Single Borrower (SASB)

SASB deals continued their market dominance in August, with 12 of the 14 deals that priced. Specifically, they accounted for $6.4 billion of the $7.7 billion issued in the month. This extends the established trend. Furthermore, SASB now represents approximately 83% of August volume and maintains its commanding year-to-date share of over 70% of total issuance.

Notably, this surpasses even 2024’s substantial two-thirds market share. The sustained preference underscores investors’ appetite for concentrated exposure to high-quality, large-scale commercial real estate assets.

The property mix in August highlights how investors’ continued focus on quality overcomes broader sector-specific concerns. Case in point, four office deals totaled over $1.4 billion. These deals achieved strong execution as premium properties with institutional sponsors continue to find demand. This occurred despite broader office sector challenges.

Conduit Deals

August’s conduit activity, just two deals for $1.3 billion, shows the market’s continued inconsistency. It dropped sharply after seeing 5 deals in July. Moreover, the late-August slowdown likely made aggregating collateral and executing conduit deals more challenging. This happened as originators and capital markets teams stepped away for the end of summer breaks.

Source: Commercial Mortgage Alert, Morningstar Credit

CRE CLO Market

With $21.6 billion in issuance through August, the CRE CLO market has exceeded all expectations. Specifically, this year’s volume is nearly 2.5 times the entire issuance total for 2024. Additionally, it exceeds the combined $15.4 billion from the previous two years.

While still below the peak volumes of 2022 ($45 billion) and 2021 ($30 billion), the current pace suggests the market is well on its way back to pre-correction levels.

August saw an uptick in CRE CLO issuance, with 3 deals for $3.3 billion coming to market. Consequently, this contributes to what has already been a remarkable year for this asset class. All three priced before the 15th. This keeps in line with the seasonal trends discussed already. Furthermore, the collateral backing these deals was almost entirely multifamily. This demonstrates continued strong execution for that asset class across this product.

Source: Commercial Mortgage Alert, Morningstar Credit

Market Analysis and Outlook

Credit and Spread Environment

New issue CMBS spreads continued to tighten across the capital stack in August. This reflects robust investor appetite and expectations of a more accommodative Fed policy ahead. Moreover, the combination of quality deal flow and anticipation of rate cuts has created a favorable backdrop for issuers.

This spread compression underscores the market’s confidence in deal quality. Additionally, it demonstrates the compelling relative value CMBS offers versus corporate credit.

Seasonal Patterns Reassert Themselves

August’s performance followed a more traditional seasonal script. Specifically, robust activity occurred through the first two-thirds before the predictable late-month pause. Market participants took their summer break during this time.

This measured approach reflects a mature market that can afford to step back without losing momentum. Therefore, it sets up for the anticipated post-Labor Day surge.

Fed Policy as a Catalyst

Market participants are increasingly optimistic about potential rate cuts providing tailwinds for the remainder of 2025. Specifically, lower rates could ease refinancing pressures and improve deal economics. Consequently, this could potentially drive even stronger issuance volumes in the fourth quarter.

Property Sector Divergence

The market exhibits stark performance variations across property types. Office properties face the most severe stress. Specifically, vacancy rates and structural challenges create ongoing headwinds.

Conversely, industrial and multifamily sectors, while experiencing some pressure, continue demonstrating relative resilience. Furthermore, market experts predict that issuance volumes in 2025 will likely surpass 2024 levels. This is driven largely by acquisition financing as rate cuts lower borrowing costs

Forward-Looking Considerations

With solid forward-looking pipelines and trailing twelve-month issuance surpassing $123 billion, the fundamentals look strong. All signs point to a robust finish to 2025. This is particularly true if anticipated Fed rate cuts provide additional momentum.

Positive Drivers:

• Fed rate cut expectations are creating a more favorable refinancing environment
• Strong post-Labor Day pipelines with market participants returning refreshed and ready to execute
• Continued spread tightening across the capital stack, demonstrating robust investor demand
• CRE CLO market growth is adding momentum and another financing avenue for commercial real estate

Risk Factors:

• Ongoing geopolitical uncertainties that could impact credit markets
• Persistent office-sector-specific challenges despite strong execution for premium properties
• Headline and policy risk from D.C., creating uncertainty around trade and regulatory guidelines
• Potential volatility if Fed policy doesn’t align with market expectations

Conclusion

August’s traditional seasonal pause reflects a mature market confident enough to take a breather while maintaining remarkable underlying strength. With robust pipelines, tightening spreads, and potential Fed accommodation awaiting market participants’ return, the non-agency CMBS market appears positioned for a strong finish. Ultimately, this could cement 2025 as its best year since the pre-GFC era.