CMBS issuance plunges 85%

Commercial market grinds to halt over rate hikes, defaults

Rising interest rates and fears over defaults have led to issuance of commercial mortgage bonds to grind to a near halt, Bloomberg reported

Just $4.27 billion of CMBS have been sold this year, the outlet reported, representing an 85 percent nosedive compared to the same period last year, when $29.38 billion of CMBS were issued, the outlet reported, citing data it compiled.

The Fed’s rate hikes over the past year, as well as fears of a recession, have made it more challenging to refinance debt; the rate hikes have also led to a decline in property sales

In addition, investors are being more cautious following a number of defaults, foreclosures and give backs in office, hotel and multifamily portfolios over the past year.

In New York City, more than $16 billion in loans secured by commercial properties are set to mature this year, nearly 30 percent more than what came due in 2022, according to data from Trepp

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In Los Angeles and Orange County, where the office market is cratering, the situation is even more dire. About $30 billion of CMBS debt on 400 commercial properties is set to come due this year, according to data from DBRS Morningstar, compared to $10 billion last year.  

“Default risk has increased and could be more problematic if rates increase and the economy slows,” Chris Sullivan, chief investment officer at United Nations Federal Credit Union, told Bloomberg. “So, I think a cautious and especially diligent approach is appropriate.”  

The CMBS market tracks with the drop in commercial real estate loans. Last year saw a 10 percent decrease in CRE loans, from $891 million in 2021 to $804 million in 2022, the outlet reported, citing data from Mortgage Bankers Association. This year, MBA forecasts just $684 million in such loans, representing another 15 percent plunge that will cut into the CMBS market. 

“Everything is frozen, so there’s no raw material to make CMBS transactions,” Paul Norris, of Conning & Co., told Bloomberg. “It’s very hard to bring new deals to market now, because there’s nothing happening in the real estate market. 

— Ted Glanzer