Finance  ·  CMBS

Private-Label CMBS Volume Set for Bounce-Back Year


Commercial mortgage-backed securities (CMBS) volume is poised for a rebound in 2021, after a sluggish 2020 hampered by the COVID-19 pandemic.

CMBS private-label issuance totaled $8.3 billion through February, with up to eight deals set to price in March, according to Kroll Bond Rating Agency. Kroll analyst Nitin Bhasin said private CMBS label issuance is expected to improve throughout the year and should top previous volume projections of $60 billion.

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“We do expect as the year progresses every quarter to be a little bit better than the previous quarter as the pandemic starts to hopefully subside and mobility across the population increases,” Bhasin said. “The more confidence there is that folks are vaccinated, more mobility should increase and help with the recovery of commercial real estate.”

Last year’s total private-label CMBS volume of $54.1 billion was 43.9 percent below 2019 issuance, and well below Kroll’s 2020 expectations. The year got off to a hot start with $17.8 billion of activity in the first two months, before the market virtually shut down for much of the second quarter, after the pandemic prompted shutdown orders throughout the U.S. in mid-March. Bhasin said CMBS did bounce back quicker than expected though, especially in comparison to past recessions with issuance picking up in the last two quarters of 2020.

While an uptick is expected throughout 2021 as progress is achieved on vaccine distribution, Bhasin cautioned uncertainties still remain, given that headwinds face two of the four core property types in private-label CMBS: lodging and retail. The two typically comprise one-third of loan supply. He said a wild card as to how total volume in 2021 pans out will be how quickly global travel recovers, since many hotels in markets like New York, Los Angeles and Miami rely on international tourists.

"It depends what is happening in other countries, and how transcontinental flights are and various government regulations on allowing people in,” Bhasin said. "If you have to come to New York from Canada or Europe and quarantine for a week, you aren’t going to book a vacation to New York.”

The lack of supply in lodging and limited retail deals so far has been picked up mostly by higher-than-expected issuance in office transactions, despite increasing work-from-home trends, due to high rent collection rates from long-term leases, according to Bhasin.

Self-storage and industrial have also seen a slight increase of late, he said.

Omar Eltorai, a market analyst at Reonomy, noted that recent acceleration of private-label issuance has narrowed the volume gap of agency CMBS guaranteed by Fannie Mae and Freddie Mac, which is a positive sign reflecting the markets’ renewed optimism for economic recovery and risk appetite.

"Most of the expectations coming into 2021 were that private-label issuance activity would be steadier than it was in 2020, but roughly land in the same ballpark,” Eltorai said. "If private-label issuance activity continues at its current pace, 2021 issuance will likely beat those expectations by a solid margin.”