In the world of mortgage-backed commercial securities, conduct loans have always been the bread and butter of the market.
But while CMBS issuance has surged this year after a tough 2020, bridging loans, which include long-term refinancing loans that are pooled with other loans, securitized and sold to investors, are still lagging behind.
Two other types of CMBS loans made up the bulk of new loans this year: loan commitments secured by commercial real estate, or CRE CLOs – which are short-term bridging loans or transitional loans; and a single asset / single borrower – SASB – loans, which are nine- and ten-digit loans for portfolios or trophy property.
“When a sector that has historically been the leader in emissions starts to occupy a distant third place, it makes the market ask questions,” analysts wrote at Trepp. Recent report on the inefficiency of the pipe sector.
According to the report, in the first half of 2021 alone, the release of CRE CLO has already broken an annual record, reaching over $ 20 billion. SASB loans reached $ 31 billion, more than for all of 2020 and will soon exceed the pre-pandemic average.
Overall, the private label CMBS market (that is, excluding Fannie Mae, Freddie Mac and related organizations) generated $ 67 billion in loans in June, already more than the total for all of 2020.
Meanwhile, in the first half of the year, only $ 14.7 billion was disbursed in direct loans, which is in line with last year’s figure of $ 28.5 billion, but still well below the average of $ 45 billion per year from 2017 to 2019. year. See what types of properties CMBS is receiving. loans help explain much of the discrepancy.
As you can see from the graphs above, retail and residential properties – some of the biggest victims of the pandemic – have historically been CMBS’s top lending targets, accounting for over a third of the total from 2017 to 2019.
CMBS lending to hotels has dropped 73% over the past 12 months, compared with the average of the three years before the pandemic. And if we exclude the $ 3 billion loan for one asset to MGM Grand and Mandalay Bay Blackstone Group in Las Vegas, which arose before the pandemic but was securitized later – after several months of uncertainty – the decline rises to 89 percent.
“The problem with hotels is knowing how much cash flow to guarantee,” write analysts at Trepp.
While lenders and investors may prefer to have loan underwriting based on performance over the past 12 months, including the dark days of the pandemic, borrowers would prefer to use a shorter time frame. As a result, few transactions are being made, and those that did have relied heavily on pre-pandemic financial data.
While the hospitality sector can at least look forward to a recovery in the coming months, the picture for retail is more uncertain given the headwind that malls and retailers have faced since before Covid.
“Widespread lending to traditional malls located in department stores, which make up the bulk of CMBS retail, whether they are open-air or gated, does not appear to be largely on the horizon,” the report said.
Trepp analysts, meanwhile, say it is “somewhat surprising” that CMBS’s multi-family lending has not outperformed given the strength of the sector. “GSEs [government-sponsored enterprises like Fannie and Freddie] probably too competitive in terms of the price of the pipelines, ”the report says.
In light of the conservative underwriting of some lenders, borrowers may simply prefer to “turn to the CRE CLO loan fund / lender for a short-term solution rather than blocking a less than ideal loan for the next decade”.
Finally, one of the sectors that has significantly surpassed the market is industry and industry. self storagecaused by the rise of e-commerce and other disruptions. But, according to Trepp, this asset class “is simply not large enough or valuable enough per square foot to overcome the downturn in retail and hospitality.”
Large industrial portfolios also tend to be more suited to SASB deals than channels. The SASB market has recently had several large transactions such as $ 4.65 billion loan for 62,257-key portfolio of Extended Stay America, or SL Green Realty’s $ 3 billion refinancing of the One Vanderbilt office tower in Manhattan.
Trepp analysts also note that market sentiments such as “unwillingness to fix long-term financing in the current environment” are prompting many borrowers to renew their existing loans for another 12-18 months instead of seeking new financing.
“Conduit CMBS has been delivering a significant amount of stable historical cash flow,” the report says. “Patience can be a virtue, especially when the loan you invest in today needs an asset that will stand the test of time (over 10 years).”