CMBS Conduit Capital Focuses Heavily on Multifamily, Office Sectors

The latest conduit commercial mortgage-backed securities (CMBS) data from CRED iQ reveal a lending market that has grown more selective, not more cautious. Rates broadly eased over the past year, yet borrowers in most property types are being asked to bring more equity to the table than they were 12 months ago. Multifamily and office are the exceptions, for different reasons, and increasingly the exceptions define the cycle.

Multifamily is the sector where issuers extended more credit on better terms. The loan-to-value (LTV) ratio climbed to 62 percent, up 2.2 percentage points and the highest of any property type, while the rate on those loans fell the most in the entire sample, down a full half-point to 6 percent. Debt yield actually dropped slightly, meaning borrowers are covering less cushion per dollar borrowed even as leverage rose. That is about as clean a vote of confidence as a lending market gives.

Office also gained leverage, but the mechanics look different. LTV for office loans rose 3.3 points, to 49.5 percent, yet the debt service coverage ratio (DSCR) fell by more than two-tenths of a turn, to 1.94 times, and debt yield ticked up rather than down. Issuers are willing to lend more against office collateral, but they’re pricing that leverage with thinner coverage and a smaller margin for error, a bet that office cash flows have stabilized enough to underwrite more aggressively, not a wholesale return of confidence in the sector.

With other property sectors, trends went in a different direction, and more sharply.

Retail’s LTV fell 10.2 points, to 47.8 percent, while its debt yield jumped 8.1 points, to 20.3 percent, the single largest swing in the table. Self-storage and industrial told a similar story with leverage down 6 to 10 points, respectively, while debt yield and DSCR were both up. None of these sectors is in distress, and DSCR actually improved in each case, but issuers are structuring deals that require meaningfully more sponsor equity than they did a year ago, even as the underlying cost of debt got a little cheaper.

Hotel remains the market’s most-watched holdout. Its debt yield, at 22.4 percent, is the highest of any category by a wide margin, and it rose again this year even as rate and LTV both eased at the edges. Lenders are still pricing in more downside than the headline rate suggests.

The blended LTV for conduit CMBS loans held flat at 55.6 percent both years, but that’s an artifact of mix, not stability. Multifamily’s share of the loan count rose from roughly 31 percent to 43 percent. If you strip that shift out, the underlying message is unambiguous: Capital is concentrating in multifamily and, more cautiously, in office, while every other property type is being asked to fund the gap themselves.

Liam Mulcahy is senior product manager for CRE data and applied AI at CRED iQ.