Explore Key Insights from KBRA's Latest CMBS Trend Watch

KBRA's December 2024 CMBS Trend Watch Highlights

Each month, KBRA provides invaluable insights through its CMBS Trend Watch, and the December 2024 report is especially noteworthy. The latest findings reveal that U.S. CMBS issuance capped off the year impressively, surpassing the remarkable threshold of $100 billion. This achievement has only been witnessed a single time since the global financial crisis, marking a significant recovery in the sector.

Record Issuance in 2024

The issuance in 2024 reached an astounding $104.1 billion, which represents an impressive year-over-year increase of 164.7%. Such growth indicates a robust demand and confidence in commercial mortgage-backed securities (CMBS). Additionally, collateralized loan obligations linked to commercial real estate, known as CRE CLO, saw a surge with end-of-year issuance reaching $8.7 billion, a 29.9% increase from the previous year. This positive momentum bodes well for the ongoing financing landscape into 2025.

Upcoming Developments in 2025

Looking toward January 2025, there’s anticipation that the market may witness up to 17 rated deals. This includes eight single-borrower loans, five conduits, three CRE CLOs, and one from Freddie Mac. Such activity emphasizes a healthy pipeline of ratings that could propel further growth in the CMBS market.

Monthly Activities and Rating Updates

In December, KBRA undertook substantial surveillance activities, publishing pre-sales for five notable deals that amounted to $4.4 billion. These comprised three conduits valued at $2.6 billion, one single-borrower deal at $615 million, and one Agency loan totaling $1.2 billion. This regular scrutiny is crucial for maintaining market transparency and investor confidence.

Ratings and Performance Analysis

The month also saw KBRA conducting ratings reviews of 521 securities linked to 41 transactions. The results were mixed; 464 ratings were affirmed, while 53 were downgraded and four upgraded. Notably, 22 ratings were placed on Watch Downgrade across three deals. This evaluation showcases KBRA's commitment to delivering timely insights into market dynamics.

Spotlight on Rating Transitions of 2024

One of the most intriguing sections of the report focuses on the rating transitions experienced throughout 2024. The KBRA-rated U.S. commercial real estate securitizations, which include various categories such as traditional CMBS, Freddie Mac K-Series, and CRE CLO, faced unprecedented downgrades this year. A large proportion of these downgrades were concentrated in conduit and single-borrower transactions, particularly those at non-investment grade and low investment grade levels.

The Distress Rate's Impact

In 2024, there was a marked increase in the CMBS distress rate, which rose by 260 basis points, ultimately reaching 9.3%. This figure is a significant jump from 6.7% the previous year, reinforcing the challenges in the market. The distress rate takes into account both delinquent loans and those that are current but serviced by special servicers.

About KBRA

KBRA is a fully integrated credit rating agency with a presence in the U.S., EU, and UK. It is recognized for its ability to provide structured finance ratings in Canada as well. Investors often rely on KBRA's ratings for regulatory capital considerations across various jurisdictions. This trust illustrates the strategic positioning of KBRA in the global credit market.

Frequently Asked Questions

What is the CMBS Trend Watch?

CMBS Trend Watch is a monthly report by KBRA that provides insights into the trends and statistics in the commercial mortgage-backed securities market.

What were the key findings in the December 2024 report?

The report highlights a record issuance of over $104 billion in CMBS for 2024, showcasing significant growth and an optimistic outlook for early 2025.

How has the CMBS distress rate changed in 2024?

The distress rate increased by 260 basis points over the year, ending at 9.3%, compared to 6.7% the previous year, which signals increased challenges within the market.

What does KBRA do?

KBRA is a credit rating agency providing evaluations of securities, particularly in the structured finance and real estate sectors, to assist investors and enhance market transparency.

Why is the increase in CMBS issuance significant?

The rise in CMBS issuance indicates renewed confidence in the commercial mortgage market and serves as a positive signal for the overall economy and financial stability.

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