April non-Agency CMBS Market Grinds to a Halt

Non-Agency CMBS Market Overview

The global financial market turbulence in April stemming from sweeping U.S. tariffs and escalating trade tensions spilled over into non-Agency CMBS issuance which ground to a halt during the month. After a robust first quarter with over $37 billion in new issuance, April saw only 7 deals come to market totaling a meager $3.3 billion, the lowest volume in the market since February 2024. The deal flow for the month was barbell-shaped with 4 deals pricing by the 11th, followed by a two-week hiatus with no pricing, before 3 deals came in the last week of April.

Source: Commercial Mortgage Alert, Morningstar Credit

Despite the sluggish April, 2025’s aggregate issuance volumes remain ahead of 2024’s pace with total issuance exceeding $40 billion, approximately $15 billion more than at the end of April last year.

Source: Commercial Mortgage Alert, Morningstar Credit

While April’s results were disappointing, all is not lost. First, there were 7 deals for roughly $7 billion slated for April that were paused as issuers waited for market conditions to stabilize, and most if not all of those should come to market in May as sentiment has rebounded. Additionally, recent deal execution has been solid, so the forward-looking pipeline is building as volatility subsides and spreads tighten.

Deal Composition Analysis

Single Asset Single Borrower (SASB)

Five of the seven deals that priced in April were SASB deals, accounting for about $1.9 billion of the monthly issuance. The breakdown of collateral was one industrial deal, two hotel deals, one retail deal, and one multifamily deal, showcasing resiliency and investor appetite for SASB deals with strong sponsors across different property types.

Conduit Deals

Two conduit deals came to market at the end of April totaling $1.4 billion as issuers waited longer to bring pooled transactions to the market given the volatile conditions.

Source: Commercial Mortgage Alert, Morningstar Credit

CRE CLO Market

Interestingly, despite the challenging market conditions, two more CRE CLO deals were priced in April for just over $2.1 billion, bringing year-to-date issuance to almost $10.5 billion in total. One of these deals was from a first-time issuer, Invesco, demonstrating that new platforms could place debt even in tough market conditions. Market participants expect May to be even better, with one deal already having been priced and at least two more in the market during the first weeks of the month.

Source: Commercial Mortgage Alert, Morningstar Credit

Market Analysis and Outlook

The April slowdown reflected heightened investor caution amid global trade tensions rather than fundamental concerns about commercial real estate. Several key factors influenced market dynamics:

1. Spread Widening: AAA spreads widened by 10-15 basis points across the board in early April, with lower-rated tranches experiencing even greater widening across the stack. However, spreads began to normalize by month-end as market participants recognized the temporary nature of the disruption.
2. Investor Sentiment: Money managers and insurance companies adopted a wait-and-see approach, reducing participation in new issues while focusing on secondary market opportunities at more attractive levels.
3. Property Type Performance: Industrial and multifamily assets continued to demonstrate resilience, while office properties faced ongoing scrutiny. Retail and hospitality assets showed improvement, particularly in strong locations with quality sponsors.
4. Liquidity Dynamics: Secondary market trading volume increased during the issuance slowdown, with bid-ask spreads widening temporarily before returning to more normal levels by late April.
5. Interest Rate Environment: Despite market volatility, the underlying interest rate environment remained relatively stable, providing some cushion against more severe market disruption.

Conclusion

The April pause appears to be a temporary setback rather than an indicator of deeper structural issues in the CMBS market. With $7 billion of delayed deals expected to come to market in May, combined with the regular pipeline, the sector is positioned for a strong rebound.

Several positive factors support a constructive outlook for the remainder of Q2:

1. The primary market has already shown signs of recovery with successful pricings in late April and early May.
2. Broader fixed income markets have stabilized as investors have better calibrated the impact of trade tensions.
3. The yield premium of CMBS relative to corporate bonds remains attractive, likely drawing investors back to the sector as volatility subsides.
4. The continued growth in the CRE CLO market demonstrates ongoing structural innovation and investor appetite for commercial real estate debt.

For the remainder of 2025, we anticipate non-Agency CMBS issuance to return to its strong pace. However, investors should remain vigilant regarding potential additional market disruptions from geopolitical events, policy changes coming from Washington, potential interest rate volatility, and ongoing structural changes in certain commercial real estate sectors, particularly office.