CMBS Issuance Levels Soar 3x Over 2023
The first half of 2024 saw a massive increase in CMBS issuance, reaching $42.29 billion, marking a nearly threefold increase from the previous year.
Jordan B. & Han-Gwon Lung
July 24, 2024
Together with
Good morning. Domestic, private-label CMBS issuance saw strong growth in the second quarter, driving the first half's volume to $42.29 billion, marking a nearly threefold increase from the previous year.
Today’s issue is brought to you by 10 East—a membership-based investment firm focused on private market exposure.
Market Snapshot
|
|
||||
|
|
*Data as of 7/23/2024 market close.
STRONG GROWTH
CMBS Issuance Levels Soar 3x Over 2023
The first half of 2024 saw a massive increase in CMBS issuance, reaching $42.29 billion, nearly tripling the $16.47 billion recorded in the same period of 2023, as reported by Trepp.
Recovery: Last year's issuance was particularly low as market participants adjusted to higher interest rates and decreased property values. In contrast, 2024 has seen a shift, with borrowers returning to the market, investors showing enthusiasm, and lenders adapting their products to meet the new demand. This year’s issuance surpasses the $37.02 billion average post-lockdown first-half issuance and the $37.92 billion average of the past decade.
Shifting market: Lenders have responded to borrower demand by offering more five-year mortgages, providing greater flexibility compared to traditional 10-year conduit loans. This shift has significantly impacted the market dynamics, contributing to the increased issuance volume.
Zoom in: Trepp says a major trend this year is the resurgence of single-borrower deals, making up over two-thirds of the issuance. Over 80% were secured by floating-rate mortgages, with Blackstone Group leading the pack. With Blackstone expected to seek $15 billion more, CMBS issuance could top $100 billion in 2024, a feat achieved only once since 2010.
Leading lenders: Wells Fargo Securities led the market as the top bookrunner, with 9.65 deals totaling $6.61 billion, representing 15.64% of the market. Close contenders were Citigroup and Goldman Sachs, holding 13.13% and 11.38% of the market share, respectively. Wells Fargo also dominated as the leading loan contributor, with an average loan size of $123 million, significantly higher than last year’s average.
➥ THE TAKEAWAY
Big picture: Last year’s high rates and low valuations pressured CMBS values and financing. Trepp notes that this year, there seems to be an acceptance of these conditions, suggesting a "new normal" for CRE markets. However, predicting the second half of the year's activity remains uncertain. A notable trend is the increasing preference for five-year mortgages, which offer more flexibility compared to traditional 10-year conduit loans.
TOGETHER WITH 10 EAST
Where sophisticated investors access private markets
10 East, led by Michael Leffell, allows qualified individuals to invest alongside private market veterans in vetted deals across private credit, real estate, niche venture/private equity, and other one-off investments that aren’t typically available through traditional channels.
Benefits of 10 East membership include:
-
Flexibility – members have full discretion over whether to invest on an offering-by-offering basis.
-
Alignment – principals commit material personal capital to every offering.
-
Institutional resources – a dedicated investment team that sources, monitors, and diligences each offering.
10 East is where founders, executives, and portfolio managers from industry-leading firms diversify their personal portfolios.
✍️ Editor’s Picks
-
Risk revelations: The OCC found that half of large US banks lack adequate operational risk controls, potentially impacting the future of CRE lending.
-
Master Real Estate Investing: Reserve your spot in the 8-week online Wharton Online & Wall Street Certificate Program. Build your network, gain practical skills, and learn from top CRE executives. Use code CREDAILY by 8/12 to save $500. (sponsored)
-
Redemption saga: Nontraded REIT redemption requests dropped 34% in June after a surge in May, with large funds exceeding their caps to fulfill redemptions.
-
Frivolous filings: Michael Shvo responded to a $600M lawsuit from Core Club, calling the claims "frivolous" as the heated legal battle over club expansions continues.
-
Still Rome: Manhattan property sales reached $2.4B in Q2 with 60 transactions, 13% more than in Q1, and 20% more on a YoY basis.
-
Data delights: Hourigan sold 400 acres in Varina to QTS Data Centers for $119M, marking the highest-priced real estate deal this year for the sector.
-
Haute Hilton: San Diego's Hilton La Jolla Torrey Pines, near a famous golf course, sold to JRK for $165M.
🏘️ MULTIFAMILY
-
Premium pressures: Nationwide, multifamily property values have dropped 3.6% due to rising insurance costs, most notably impacting Sunbelt markets.
-
Changing hands: A Troesh family entity, linked to a cement industry fortune, acquired the country’s first Planet Smart City complex in Dallas for $65.3M. The sale yielded a 30% IRR.
-
Permit problems: Invitation Homes (INVH) settled a $20M case alleging a lack of permits for updates on 12K+ California homes, with less than 7% having permits.
-
Southern chill: The South Florida condo market saw regional sales drop 26.8% to 33% across counties, due in part to rising HOA fees and insurance costs.
-
Texas takeover: MLG Capital's 54th Texas purchase, Jade at Frisco, comes with 424 units and a $70.5M loan with an expected 2029 maturity.
-
Affordable innovation: Graham Development plans to start construction in February on a $60M, 360 KSF affordable multifamily project in South Austin with 340+ units.
🏭 Industrial
-
Semiconductor secrets: An analysis by Colliers revealed that Texas semiconductor investments under the CHIPS Act offer some great CRE opportunities, with $52.7B dedicated to the sector.
-
Amazon expands: The rainforest grows as Amazon Web Services (AMZN) acquired a 33-acre data center complex in Sterling, VA, for $135.8M.
-
Placid ports: Nationally, port industrial markets are facing cooling demand, rising vacancy rates, and slow rent growth, with 436 KSF of negative absorption recorded in 1Q24.
-
In the name of industry: VanTrust Real Estate sold a fully leased 550.24 KSF Primark facility with significant features in Jacksonville, FL, to INDUS Realty Trust.
🏬 RETAIL
-
Retail resilience: Nationwide, retail visits rose 4.2% YoY in Q2, driven by discount stores like Dollar General (DG) and Five Below (FIVE), with foot traffic up 11.2%.
-
How it’s done: SL Green (SLG) achieves full retail occupancy at One Madison Avenue with over 66 KSF leased, including some major food tenants.
-
Power play: L Catterton, backed by famed luxury tastemaker Bernard Arnault, bought a 25% stake in Value Retail for £1.5B, acquiring nine luxury outlet malls.
-
The 1901 Project: Chicago's United Center owners proposed the $7B mixed-use 1901 Project, to include a new music hall, thousands of apartments, and plenty of retail. It’s projected to create 63K jobs.
-
Hollywood gem: A $100M Hollywood compound, home to the iconic Yamashiro sushi restaurant, is up for sale. The buyer has the potential to add 280 KSF of new construction to the compound.
-
Favorite anchor: 7-Eleven (SVNDY) assets keep selling for more than comparable credit tenants like drug stores and cafes, with 33 properties sold for $242M at average cap rates of 5.27%.
🏢 OFFICE
-
Capital concerns: The Washington, DC, office market is struggling with rising foreclosures, record vacancies, and falling values amid election uncertainty, which is impacting the city’s local economy.
-
Groupon gamble: Arizona firm 3Edgewood, led by ex-Suns owner Robert Sarver, eyes a discounted purchase of Chicago's former Groupon HQ, which is only 62% leased.
🏨 HOSPITALITY
-
License to unionize: A newly proposed bill in NYC would require hotel operators to obtain licenses, facing industry criticism as a possible unionization tactic.
-
Casino clash: NYC Assemblyperson Tony Simone opposed Related Companies and Wynn Resorts' Hudson Yards casino project due to community pushback.
A MESSAGE FROM NEUTRAL
Neutral. Bigger Than Us.
Neutral is pioneering a new standard in sustainable living, seamlessly integrating innovation, sustainability, community, and design into every aspect of the resident experience. At Neutral, we are Redefining Sustainable Living Through Innovation. Click here to find out more.
📈 CHART OF THE DAY
According to John Burns Research, Texas is the only market in the country where land developers say land supply is higher than normal. Texas also recently produced an all-time high level of new homes.
You currently have 0 referrals, only 1 away from receiving B.O.T.N Multifamily Deal Screener .
What did you think of today's newsletter? |
