2024 CMBS Outlook (2024)

FAQs

2024 CMBS Outlook? ›

The outlook for 2024 is more optimistic, with forecasts calling for a rebound in non-agency volume to close to $55 billion. This certainly bodes well for liquidity, something the market has been starved of for several quarters.

S&P expects 2024 issuance to grow a further 11.8% y/y to EUR95bn owing to (1) a larger volume of legacy transactions reaching their call dates and (2) a modest recovery in areas of credit origination such as auto financing that back most ABS issuance.

These loans tend to come with better interest rates than you'd find with a traditional commercial loan. CMBS loans typically come with fixed interest rates, which means the rates won't fluctuate throughout the life of the loan. These types of loans tend to be a better bet for both the borrowers and the investors.

New Issuance Increased With SASBs In The Lead

New private-label CMBS issuance was about $18 billion in first-quarter 2024, excluding $2 billion in CRE CLOs. This was well ahead of the issuance pace in 2023 (the full-year total was $40 billion).

The CMBS market crashed spectacularly in late 2008 after an equally spectacular run from 2003 through mid-2007. The cause of this crash and subsequent CMBS market freeze was remarkably simple: low-quality mortgage pools were oversold by investment banks and overrated by the rating agencies.

The outlook for 2024 is more optimistic, with forecasts calling for a rebound in non-agency volume to close to $55 billion.

The Economic Outlook projects steady global GDP growth of 3.1% in 2024, the same as the 3.1% in 2023, followed by a slight pick-up to 3.2% in 2025.

Largest shareholders include Pathstone Holdings, LLC, Pathstone Family Office, Llc, State of New Jersey Common Pension Fund D, Arvest Investments, Inc., Ameriprise Financial Inc, UBS Group AG, Morgan Stanley, Tortoise Investment Management, LLC, AE Wealth Management LLC, and Bank Of America Corp /de/ .

The major disadvantages of CMBS loans include: Less autonomy in the operation of the property and limited flexibility to deviate from the terms of the loan documents. Difficulty in releasing collateral. Expensive to exit.

The Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase agency CMBS as needed to support and sustain the smooth functioning of the agency CMBS market and the effective transmission of monetary policy.

How do banks make money on CMBS? ›

CMBS lenders are essentially wholesalers, benefitting from what the retail industry would call a bulk discount. They originate loans at a certain interest rate, then sell them later at a different interest rate thanks to the bulk package they provide through their bonds.

CMBS Market Investors → Once the tranches of the CMBS loan are established, the bonds are sold to institutional investors, such as pension funds, insurance companies, and hedge funds (e.g. credit or debt funds), and real estate investment trusts (REITs).

Interest rates: CMBS loans come with a fixed interest rate, based on the Treasury interest rate. They may also have a favorable introductory payment period. Term length: CMBS loans have a normal term length of 5 to 10 years, usually ending with a balloon payment.

What Happens To Your Mortgage Rates & Payments? If you have a fixed-rate mortgage, then your monthly payments will remain the same, which can be beneficial in a high-inflation environment. However, if you have an adjustable-rate mortgage, expect your payments to increase.

Ethan Penner is often credited with being the individual who created the CMBS market. While working at Nomura Securities Co., he allocated billions of dollars to real estate lending when many banks and insurance companies abandoned the practice amid steep losses during the Savings and Loan Crisis.

Dave McCormick forged a relationship with Ray Dalio, the founder of Bridgewater Associates, in early 2008 and was rewarded with a job at Bridgewater after Dalio made $780 million on the financial collapse.

Overall, while there may be some headwinds, the outlook for structured finance in 2024 appears cautiously optimistic. Opportunities exist across various segments, with private credit expected to remain a key player.

“In 2024, we expect the overall stable trend of our rated project finance portfolio will continue as a majority of the rated transactions are contracted, with no direct exposure to market volatility, so the underlying cash flows will be stable,” said Biao Gong, Senior Vice President, Project Finance.

Description: The January 2023 World Economic Outlook Update projects that global growth will fall to 2.9 percent in 2023 but rise to 3.1 percent in 2024. The 2023 forecast is 0.2 percentage point higher than predicted in the October 2022 World Economic Outlook but below the historical average of 3.8 percent.

The Global ABS market is anticipated to rise at a considerable rate during the forecast period, between 2024 and 2031. In 2023, the market is growing at a steady rate and with the rising adoption of strategies by key players, the market is expected to rise over the projected horizon.