CMBS Poised for Late 2025 Upswing If Fed Cuts Interest Rates: KBRA Report

A mid-September Federal Reserve rate could set up a surge in an already active commercial mortgage-backed securities (CMBS) private label issuance market, according to a new KBRA report.

CMBS private label volume was up 23.9 percent year-over-year through August, according to KBRA research released Friday. August was dominated by single-asset, single-borrower (SASB) deals comprising 12 of the month’s 14 CMBS deals, with another 10 slated to price in September, compared with six conduit transactions, according to KBRA.

While CMBS activity is on the upswing, so is distress, however. KBRA research found $54.8 billion (8.3 percent of the CMBS market) requiring servicer advances as of August, nearly double levels from three years ago. Appraisal reduction amounts numbered $11.3 billion last month, up 45 percent over the past two years, driven by distress in office, retail and lodging loans, according to KBRA. 

The delinquency rate for KBRA-rated U.S. private label CMBS deals jumped 7.9 percent in August from 7.5 percent. 

Expectations for the first U.S. interest rate cut since December intensified in late August when Fed Chairman Jerome Powell said at the central bank’s annual Jackson Hole, Wyo., retreat that shifting economic conditions with trade, immigration and tax policies “may warrant adjusting our policy stance.” 

A weak jobs report released Friday also further ramped up odds of at least a 25 basis point cut when the Fed next meets on Sept. 17. 

Andrew Coen can be reached at acoen@commercialobserver.com.