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KBRA: Improvement on the CMBS Issuance Front
KBRA, in its recently released February 2022 CMBS Trend Watch, offered good news and cautious news.
The good news is that CMBS private label volume totaled $11.5 billion, bringing the year-to-date issuance total to $19.3 billion; representing a year-over-year increase of 123%. March 2022 could also prove to be a stellar month, with KBRA having its eye on “up to 18 deals that could launch” in the next month, which could include several single-borrower transactions, four conduits, up to five commercial real estate collateralized loan obligations, and one Freddie Mac K-Series.
On the “cautious” side, KBRA noted the “significant downside risk, given geopolitical tensions and their possible implications on spreads, which widened significantly in February (2022).” Three conduits launched during February, priced between S +105 basis points (bps) and S +120 bps, the latter figure reaching its highest since June 2020. Additionally, the benchmark LCF AAA class averaged S +110 bps versus S +103 bps in January, 2022.
As an aside, the Freddie Mac K-Series defeasance and supplemental debt activity ended up traveling in different directions in 2021. Defeasance was at its highest level in the past decade, at $12.1 billion, a 67% year-over-year jump. During 2021, property prices increased, while interest rates remained low, which led to an increase in apartment sales and transaction closings. “Borrowers once again gravitated toward defeasance in 2021, and it resumed an upward trend, while supplemental debt fell to multiyear lows,” KBRA analysts said.
How low? Supplemental debt dropped to $1.2 billion, representing a 28% decline from the year before.
However, the drop was from a historical high of $1.6 billion in 2020, leading analysts to believe that borrowers took some of their properties’ equity while waiting for markets to recover.
