Real estate bond market heats up ahead of Miami industry conference


(Bloomberg) – Commercial mortgage bond sales are on the rise again, signaling another solid year to come after issuance of the securities hit a post-crisis record in 2021.

At least 11 transactions related to individual properties or individual borrowers are pending for January and February, according to regulatory documents and data from Barclays Capital. Sales of these commercial mortgage-backed securities, known as single-asset, single-borrower arrangements, will likely exceed $ 6 billion in the first two months, Barclays said in a research note. this week. This doesn’t even include the so-called conduit agreements, which are backed by dozens of loans of different types of property.

Single-asset, single-borrower transactions dominated issues last year. Whether that will happen in 2022 will be the focus of next week’s CMBS annual conference in Miami, hosted by industry group Commercial Real Estate Finance Council, which is due to start on Sunday.

Among the pending deals is a joint venture between investment manager Centerbridge Partners and real estate firm Merit Hill Capital, which announced a $ 615 million CMBS linked to a loan on 83 self-storage assets located in 22 states. .

“Self-storage real estate enjoys wide demand due to the need to store goods, especially during many types of ‘life-changing’ events,” according to the agreement documents. “The self-storage industry has earned the label of ‘recession resistant’ due to its relative strong performance in past recessions,” and in particular in 2020 during the Covid crisis.

The deal will also be one of the first fully priced CMBSs on the Secure Overnight Funding Rate, a replacement for the London Interbank Benchmark Offered which, as of the start of this year, is no longer used for new transactions.

Despite the fact that the pandemic has exacerbated existing problems with retail and shopping centers and impacted rents and rentals in office buildings in major cities, sales of CMBS without corporate support sponsored by the government hit a post-crisis record of more than $ 155 billion last year, according to data compiled by Bloomberg News.

The portfolio managers were eager to buy the securities because they offer higher yields than high-quality corporate bonds or asset-backed securities, and many are floating rate, which is interesting if the rates are interest increase. Strong demand for these stocks reflects investor optimism about the recovery of hotels and retail businesses. One of the deals on the bridge is now tied to a Chicago office tower, according to SEC documents.

“To date, the clearest signal for CMBS improvement has come from CMBS delinquency which fell from 5.7% in August 2020 to just 2.7% as of December 16, 2021,” wrote the Moody’s analyst Analytics Darrell Wheeler in a recent report.

However, the pandemic has fueled demand for particular types of CMBS. For the first time ever, sales in 2021 were dominated by titles backed by individual properties, typically a trophy building considered relatively low risk. Investors were willing to buy single-name, single-asset CMBS because these securities are easier to analyze than the more traditional CMBS backed by dozens of properties, known as conduit transactions. SASB’s issuance was $ 77.8 billion in 2021, compared to $ 31.2 billion for conduits, according to data compiled by Bloomberg News.

“Much of the issuance in 2021 has been driven by strong acquisition activity in the commercial real estate sector,” Barclays analysts Lea Overby and Anuj Jain said in this week’s report. “While we expect this to continue this year, we believe SASB’s issuance could normalize in 2022 and reach around $ 60 billion to $ 65 billion. That said, it is likely to remain strong in the near term.”

Another topic for next week’s conference will be whether loan obligations secured by commercial real estate can sustain the unprecedented growth they experienced last year. The niche market jumped 371% in issuance from 2020, to $ 45 billion, according to data compiled by Bloomberg News.

These titles are backed by properties that are being modernized or redeveloped, such as a shopping center turned into apartments, a scenario that has become more common as the pandemic has changed many aspects of daily life. CLOs pay comparatively higher returns.

Relative value: ABS

  • ABS spreads ended the year with four consecutive weeks of gradual tightening across major asset types, Deutsche Bank analysts said in their weekly research note.
  • Autos and triple A cards were generally wider at the end of the year compared to early 2021, while the longer ABSs of FFELP and private credit student loans were flat to tighter.
  • Auto ABS set a new supply record in 2021 with $ 131 billion in issuance, surpassing the previous record set in 2019 of $ 10 billion. The risky auto supply was exceptionally strong in 2021, and along with top-notch automotive ABS, it accounted for over 70% of the overall automotive ABS supply, the bank said.


“The issuance of SOFR-indexed loans and CLOs, which have been declining, is expected to accelerate,” Deutsche Bank CLO analysts Conor O’Toole and Keyur Vyas said in a report this week. “We look forward to the price discovery process taking place in a post-Libor world and we expect the CLO listing agreement to eliminate the reference to any credit spread adjustment, simply using SOFR + Credit Spread. in place “

And after

Several ABS deals are in pre-commercialization for next week, including GM Financial (auto premium), BMW (auto rental), Hertz (ABS rental), Hyundai (auto rental) and Santander (auto rental)

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