CMBS Issuance Headed For A Record Year After Skyrocketing In 2024

CMBS lending is on pace to hit a post-Great Recession record for new issuance.

CMBS issuance grew every quarter in 2024 and ended the year at roughly $115B in raised capital, 150% ahead of 2023, according to Kroll Bond Rating Agency. Activity picked up significantly in the back half of the year, with 15 single-borrower CMBS loans worth more than $1B issued in October alone compared to four across all of 2023.

The public debt markets are becoming increasingly popular, especially for large deals, as investors have continued to show an appetite for securitized loans on performing assets, including office space. 

“Buyers are still active, and they want to be in this market today,” said Aaron Jodka, director of research for U.S. capital markets at Colliers. “They see today as a very attractive acquisition time, and sellers have come around to the concept of higher-for-longer interest rates. They’re no longer waiting.” 

Rising CMBS debt issuance is one of the many signals that commercial real estate markets are broadly coming unstuck. Global brokerages like CBRE have benefited from the shift, turning from job cuts in 2023 to double-digit growth by the end of 2024. Most are projecting banner years as their capital markets activity, leasing and service segments all grow. 

The CMBS market began the year in a strong position, with eight transactions totaling $8B in January, up 40% from the prior year, according to Trepp. Another nine deals worth another $9B have come to market in the first half of February, nearly double the total raised over the first two months of 2023. 

CMBS offerings have adapted in recent years to match market needs. Single-asset, single-borrower, or SASB, loans took off in 2024, accounting for 45% of CMBS debt issuance compared to 20% of volume in 2023 and in line with another spike in 2021, according to Moody’s. 

Conduit loans, generally a portfolio of properties that can have different ownership, accounted for 30% of CMBS loan volume in 2024 and have trended higher for the last three years. Agency loans issued by Fannie Mae and Freddie Mac dried up last year, accounting for 26% of volume after taking more than half of market share a year prior. 

“SASB has been backfilling where conduit and agency is lacking, it's like a full circle,” said Moody's economist Twinkle Roy.

The SASB market is expected to continue to drive issuance this year, but conduit loan volume is also expected to increase. Most banks are cautiously monitoring commercial real estate’s nascent recovery, inching back into the market while trying to avoid exposure to losses, and conduit loans take time to execute and force the owner to keep an asset on its balance sheet until the deal is complete, KBRA Senior Managing Director Roy Chun said.

“It’s harder to put together a conduit transaction, and banks don't want to hold their collateral,”  he said. “They want to make the loan and securitize it right away so they don't run any kind of market risk on it.” 

Industrial and multifamily assets are expected to drive CMBS issuance this year, according to Roy. That includes a large amount of apartment debt that’s likely to be refinanced as owners and lenders come to terms with a higher-for-longer interest rate environment and move to close new loans rather than continue extending debt that’s past its initial maturity date. 

The CMBS market has even been a bright spot for high-quality office buildings that have benefited from tenants’ rush to high-quality spaces. Top-rate offices with positive cash flow have successfully found interest in the public market despite a broadly negative view of the office sector, a trend that’s expected to continue. 

New York City’s office market is a hotspot of CMBS activity. Tishman Speyer locked in a $3.5B SASB loan in October for Rockefeller Center ahead of this month’s $1.2B loan for the Seagram Building and another $1.1B loan for 3 Bryant Park.

Banks are losing patience with extend-and-pretend strategies as expectations of significant cuts this year to the Federal Reserve’s benchmark rate have all but disappeared. While there has been some capitulation, property owners are still hoping for medium-term rate relief and are coming to market with five-year deals instead of the 10-year loans that are the default when markets are stable.

Nearly 70% of CMBS conduit deals in the first 10 months of last year were for five-year loans, a sharp increase from 42% of conduit deals in 2023, according to KBRA, which expects five-year loans to continue to drive issuance. Owners piling into five-year loans have driven up their cost to borrow in the CMBS market compared to their 10-year counterparts despite their nominally lower risk profile. 

Issuance is rising, but so are loan delinquencies, which surged in December with office CMBS debt reaching an all-time high of 11%. While the overall rate ticked down three basis points in January, analysts broadly suspect that CMBS distress has not yet reached its peak.

Today’s delinquent loans were mostly issued when interest rates were at historic lows, and those owners are now being forced to grapple with today’s cost of capital. Poorly performing properties will continue to face headwinds, which is likely to push up delinquency rates, while the quality assets coming to market are just as likely to continue to attract capital. 

“Today's issuance is at a new basis, at a different interest rate environment, and it is, generally speaking, better-quality assets,” Jodka said. “The mix isn't exactly the same, and that's allowing us to see both of those situations happening at once, where you have strong new issuance yet elevated delinquency rates.”