CMBS Market Heats Up as Investors Eye Distressed Opportunities
Steve Baumgartner, May 2024 - 2 min read 
Image source: pexels, © Joshua hlschr, CC BY 2.0.
The U.S. CMBS markets sprang back to life in the first quarter of 2024 largely due to stability of treasury rates giving lenders clarity on loan pricing and deal economics. Total issuance increased significantly versus a year ago and overall, the market is on pace to far surpass 2023 as it returns to a more normal pace.
Total private label CMBS issuance was roughly 3 times more than the same period a year ago and was almost 45% of total issuance for all of 2023. SASB deals accounted for 2/3rds of this volume while March accounted for 11 of the total 23 deals, pointing to further growth of issuance to come. Additionally, two CRE CLO deals were also priced in Q1 illustrating the return of this market as deal economics begin to make more sense to issuers.
Source: Commercial Mortgage Alert, Morningstar Credit
Delinquency rates continue to dominate the headlines as borrowers and bondholders are focused on understanding market disruptions, upcoming maturities and what the future holds, especially within the office market. Market sources continue to report overall delinquency, special servicing rates and distress in legacy deals reaching multi-year highs and are projecting continuation of the negative trends set in previous quarters which makes the headlines and a somewhat negative story for the CMBS industry.
However, our recent conversations show it is not all gloom and doom despite the negative headlines. Many of the players we have interacted with see the current markets as opportunistic, with chances to earn excess returns, especially with the right asset and strategy. This is a significant shift from their perspectives over the past few years.
This is even more apparent when talking to specialty lenders, CRE equity investors and other opportunistic players in the industry. During a recent dialog, several players in the conversation were asked if they were to look ahead 3-5 years, how would they categorize 2024. Almost unanimously, they all agreed that their future selves would look back at this year as a “cannot miss” chance to get in at the right basis and risk adjusted pricing for many assets. They all agreed that staying on the sidelines in 2024 would lead to significant “buyer’s remorse” several years down the line.
