Frozen CMBS Market Posts Slowest Quarter Since 2012

Higher interest rates and widening bond spreads have dragged the market for commercial mortgage-backed securities to its slowest period in more than a decade.

Domestic, private CMBS issuance totaled just $5.98 billion in the first quarter, a 12 percent drop from the previous quarter and 79 percent decline from the $29.01 billion recorded in the same period a year ago, according to Trepp.

It was the lowest quarterly volume of new CMBS loans since the first quarter of 2012, when the economy was three years into its recovery from the global financial crisis.

Only 10 CMBS loans were issued last quarter. Among them, four conduit deals totaling $3.28 billion were recorded, a 67 percent decline from the nine transactions that totaled $9.91 billion in the first quarter of last year. Another six single-borrower CMBS loans were issued, totaling $2.7 billion, an 85 percent drop from the 26 deals totaling $18.61 billion a year ago.

CLOs, or commercial mortgages repackaged into bonds, totaled just $1.12 billion across two deals, compared to 13 transactions that combined for $15.27 billion in the same period last year.

Only 16 lenders contributed to CMBS loans in the quarter, down from 21 a year ago. Goldman Sachs was the largest player, logging seven deals for $1.31 billion. But those figures pale in comparison to the first quarter of last year, when top underwriter Citigroup issued $5.57 billion.

As the CMBS market dries up, more loans are heading to special servicing. Trepp found that the CMBS special servicing rate rose 37 basis points in March to 5.55 percent, the largest month-over-month jump since August 2020.

Notably, the uptick was driven by a higher volume of large loans being transferred, including nine with an outstanding balance of at least $100 million. That trend was consistent across loans tied to retail, office and multifamily properties.