CMBS Issuance Volume Improving: KBRA

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While the CMBS issuance volume has been consistently inching upward, 2020 issuance will close at roughly half of what was predicted a year ago, according to Kroll Bond Rating Agency.

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In its new 2021 Sector Outlook, CMBS: Slow and Steady, Kroll estimates this year’s total CMBS issuance will be 55 percent while $95 billion was anticipated.

“The pandemic threw cold water on what would have been a banner year for issuance,” according to the KBRA report. The agency anticipates that CMBS volume for 2020 will total $53 billion to $55 billion, marking the lowest total since 2012. However, with activity on track to continue on the upswing, albeit a slow-moving one, CMBS volume in 2021 will reach an anticipated $60 billion.

KBRA’s estimate is based on a host of factors, including volume in 2020, today’s interest rate environment and CMBS loan maturities. As noted in the report, research by Trepp has determined that approximately $13 billion in fixed-rate conduit loans will reach maturity in 2021, suggesting that securitized issuance may not benefit from a notable amount of refinancing directly connected to the CMBS market.

And the pandemic’s negative impact on issuance volume will persist in 2021, due in no small part to the subdued interest in loans secured by hotels and non-essential retail assets. The forecast for CMBS issuance is not entirely lackluster, however. “While the virus is expected to remain a significant headwind to issuance volume, there are factors that may support the pipeline including GDP growth, effective vaccine distribution and low interest rates,” according to the the KBRA report.

Deal-level details

KBRA’s projected 2021 issuance volume of $60 billion consists of equal parts conduit issuance and single-asset single-borrower/large loan issuance. While the anticipated 2020 conduit loan activity of $28 billion to $29 billion will exceed the projected $25 billion to $26 billion of SASB and LL issuance, in 2021, conduit and SASB/LL will each total $30 billion.

Looking forward, conduit volume will be hindered by the low demand for hotels and nonessential retail, but it may get a boost from the combination of low interest rates and persistent interest in such property types as industrial, essential retail, multifamily and particular categories of office.

KBRA notes in the report, “We expect activity to be at relatively low levels at the start of 2021, with a pickup as the year progresses, particularly if a viable vaccine is introduced to the broader public.”

SASB/LL issuance volume may be able to attribute growth in 2021 to an ongoing retreat by competing insurers and banks that frequently issue loans on trophy assets and high-quality portfolios. Additionally, the ability of the securitization market to finance loans that may be too large for other lenders will also likely encourage the forecasted rise in SASB/LL issuance.

Furthermore, KBRA expects commercial real estate collateralized loan obligations to yield an additional $10 billion in new issuance activity in 2021, holding steady near the predicted $9 to $10 billion for 2020.  According to KBRA, CRE CLOs will essentially remain flat due to “lenders becoming more selective of borrowers and property types, as well as uncertainty surrounding the pandemic and U.S. economy.”

Read the full report by KBRA