CRED iQ – Commercial Observer


“Commercial Mortgage Backed Securities (CMBS) conduits issuances from the second half of 2020 to mid-November 2021 totaled approximately $ 24.8 billion as the market braced for a final push to close the year. “wrote Marc McDevitt, Senior Managing Director. at CRED iQ. “The analysis of issuance and origination trends for securitized loans in the 2021 conduit agreements provides an overview of the commercial real estate lending landscape across all major property types.

“When we assess from the start of 2021 the emissions from conduits up to mid-November by concentration of property type, this reveals a strong preference for office guarantees, which represented nearly 35% of the total debt of the securitized conduits; The office was followed by retail, collective housing, industrial and mixed use, respectively.

“The hotel’s guarantee was significantly behind on these types of properties due to pandemic concerns. Retail may surprise by ranking second in issues with around $ 4.7 billion; however, it is a long time since there are frequent creations of massive debt packages guaranteed by super-regional malls. Instead, retail fixtures now include more portfolios of net leases and centers anchored in grocery stores. There are two malls securing banknotes which were securitized in 2021 – Kings Square and The Westchester. However, the two loans were issued in December 2019 and January 2020, respectively. Loans to individuals were generally hardened twice as long as loans to offices before being securitized. About 20% of retail loans securitized under agreements conducted in 2021 were created in 2019 or 2020, indicating a higher investor perception of the credit risk associated with the collateral.

“Seasoning has become more common for the 2021 vintage, with lenders holding loans relatively longer than in the past. About 20% of CMBS securitized led loans this year were issued before 2021. Seasoning was particularly visible for loans guaranteed by accommodation properties, with 78% of originations taking place before July 1, 2020. The most prominent example serious was a $ 6.3 million loan which was established in October 2018, secured by a hotel located in New Jersey, in the greater Philadelphia area. After two modifications and, presumably, an improvement in collateral performance since the start of the pandemic, the loan was sold to a CMBS securitization. On average, home loans were seasoned nine months before securitization, which was by far the longest among all types of property. Between origination and securitization, self-storage and industrial loans were fastest, averaging just under a month on average.

“Further exploring the loan and ownership parameters for the 2021 CMBS Conduit Issuance again emphasizes housing loans. CRED iQ looked at four main loan and property metrics for each major property type and found that home loans, on average, were structured in the most conservative way. Interest rates for home loans were second highest at a weighted average of 3.79 percent, behind only manufactured home loans. Hotel loans had the lowest loan-to-value ratios among 2021 issues, which can be derived from several factors, including the depreciation in value since April 2020, stricter underwriting requirements from originators and the Lenders’ overall mistrust of the risks associated with a type of property that has been hit hardest by the pandemic. Lenders’ risk appetite for hotel loans is also evidenced by weighted average return on debt measures. Loans secured by accommodation assets had a return on debt of 15.86%, at least 500 basis points higher than the second highest property type, offices, which had a return on debt. weighted average of 10.69%.

“Using the origination appraised values ​​and the originators’ subscribed net cash flows, CRED iQ calculated the implicit capitalization rates for each sector and the results were consistent with the lending metrics reviewed previously. The weighted average cap rate for the security deposit was 7.1 percent, which was significantly higher than retail, the second highest segment, at 5.38 percent. Mixed-use properties had the lowest weighted average capitalization rate at 3.98 percent. Much of the mixed-use collateral consisted of properties with a multi-family component located in a gateway or primary market, contributing to comparatively lower capitalization rates. In addition, industrial and office guarantees had relatively low capitalization rates compared to most types of properties, averaging around 4.3%. With the end of 2021 quickly approaching, we don’t expect to see any significant variation from the measures highlighted in the newly securitized lead loans; although the mix of guarantees and initiators’ comfort levels with hospitality will continue to be closely monitored.

NOTE: This is a revised and condensed version of a research report into the issuance and origin of CMBS published by CRED iQ in early December.


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