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.
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
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*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.
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✍️ Editor’s Picks
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Risk revelations: The OCC found that half of large US banks lack adequate operational risk controls, potentially impacting the future of CRE lending.
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Redemption saga: Nontraded REIT redemption requests dropped 34% in June after a surge in May, with large funds exceeding their caps to fulfill redemptions.
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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.
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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.
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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.
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Haute Hilton: San Diego's Hilton La Jolla Torrey Pines, near a famous golf course, sold to JRK for $165M.
🏘️ MULTIFAMILY
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Premium pressures: Nationwide, multifamily property values have dropped 3.6% due to rising insurance costs, most notably impacting Sunbelt markets.
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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.
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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.
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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.
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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.
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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
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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.
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Amazon expands: The rainforest grows as Amazon Web Services (AMZN) acquired a 33-acre data center complex in Sterling, VA, for $135.8M.
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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.
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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
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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%.
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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.
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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.
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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.
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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.
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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
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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.
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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
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License to unionize: A newly proposed bill in NYC would require hotel operators to obtain licenses, facing industry criticism as a possible unionization tactic.
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Casino clash: NYC Assemblyperson Tony Simone opposed Related Companies and Wynn Resorts' Hudson Yards casino project due to community pushback.
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📈 CHART OF THE DAY
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