Flood of single-asset deals propels CMBS market to 14-year high

Issuance doubled last year to reach its highest level since 2007, even as conduit deals stagnated

(iStock/Illustration by Kevin Rebong for The Real Deal)
(iStock/Illustration by Kevin Rebong for The Real Deal)

The market for commercial mortgage backed securities is back and bigger than ever.

Private-label CMBS issuance surged to $109.1 billion in the U.S. last year, a 95 percent increase from 2020, according to a report from Trepp, a data provider that tracks securitized mortgages.

It was the highest level recorded since 2007, when CMBS issuance peaked at $230 billion before a global financial collapse essentially halted the market.

Interest in CMBS is exploding again after dipping at the onset of the pandemic, when overall real estate activity plummeted and delinquencies spiked as some developers struggled to keep up with payments.

Developers have been attracted to CMBS loans as a means of financing large projects with cheaper, often fixed rates. The surge in activity was driven by an uptick in property sales along with the allure of higher returns for investors. Developers turning to CMBS financing are likely aiming to tap into low rates ahead of an expected Federal Reserve rate hike.

“The issuance bonanza was indicative of the market’s liquidity and investors’ hunger for yield,” the report stated.

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But the Trepp report shows that not all CMBS loans are getting love.

The majority of the new issuance in 2021 came from single-asset, single-borrower deals, tied to just one loan and generally collateralized by one large building. Trepp’s report identified 107 SASB deals in 2021 totaling $77.68 billion, or 71 percent of overall CMBS issuance by dollar volume. That was up from $23.95 billion in 2020 and nearly double the $46.36 billion issued in 2019.

In addition, commercial real estate collateralized loan obligations, or CLOs — short-term, floating rate loans collateralized by transitional properties — also skyrocketed. Fifty-one deals totaling $45.44 billion were issued — more than four times the volume recorded in 2020 and the highest annual amount ever, according to Trepp.

But conduit CMBS deals, multiple loans securitized and sold to bondholders, were nearly stagnant compared to 2020.

The 30 conduit deals totaled $30.5 billion, up just 3 percent year-over-year and well below the $49.2 billion issued in 2019.

The lack of demand for conduit deals could signal investors’ interest in the trophy assets generally tied to SASB loans. Comprising multiple loans and properties bundled together, conduit deals require more due diligence; one deal can become tainted by a few underperforming assets. Such was the case during the pandemic, when underperforming mall and hotel loans went into default.