-

KBRA Releases Research - Freddie Mac K-Series: First-Quarter 2023 Defeasance and Supplemental Debt Plummet After Record High in 2022

NEW YORK--(BUSINESS WIRE)--KBRA releases a new report on defeasance and supplemental debt, which climbed to an all-time high in 2022 for Freddie Mac K-Series deals. The numbers were very compelling, with defeasance rising 39% to $16.4 billion and supplemental debt up 73.4% to $2.1 billion on a year-over-year basis. This was despite a downward trend for both defeasance and supplemental debt throughout 2022 and continuing into Q1 2023. First-quarter 2023 recorded the largest decline on a quarter-over-quarter basis over this period for both defeasance (-58.5%) and supplemental debt (-35.4%).

Despite the decline in activity in 2H 2022, defeasance may have benefited from lower Treasury prices due to the rise in the 10-year note, as the cost to replace property cash flows with defeasance Treasury securities became cheaper. Supplemental debt activity may have also been influenced by borrowers who opted not to take out higher coupon first mortgages, keeping them intact while receiving additional proceeds through second mortgages.

In addition, as was observed with defeasance and supplemental debt trends, it was also in Q3 2022 when both price growth and multifamily transaction volume turned negative, which continued through Q1 2023. In light of the slowdown, borrowers may have been unable to obtain the price that they wanted due to wide bid and ask prices and turned more cautious, not wanting to re-leverage their existing equity through supplemental debt.

In the short term, until confidence returns to the property markets, elusive price levels will undermine multifamily investments, which in turn will influence defeasance and supplemental debt levels. However, once prices exhibit more transparency—albeit most likely at lower growth levels than previously experienced over the last decade—defeasance and supplemental debt should rise again given the sector’s track record and mortgage rate increases that have forced many out of the housing market and into apartment living.

Click here to view the report.

Related Publications

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

Contacts

Larry Kay, Senior Director, CMBS Ratings Surveillance
+1 (646) 731-2452
larry.kay@kbra.com

Aryansh Agrawal, Analyst, CMBS Ratings Surveillance
+1 (646) 731-1381
aryansh.agrawal@kbra.com

Roy Chun, Senior Managing Director, CMBS Ratings Surveillance
+1 (646) 731-2376
roy.chun@kbra.com

Business Development Contact

Dan Stallone, Senior Director
+1 (646) 731-1308
daniel.stallone@kbra.com

KBRA

Details
Headquarters: New York City, New York
CEO: Jim Nadler
Employees: 400+
Organization: PRI

Release Versions

Contacts

Larry Kay, Senior Director, CMBS Ratings Surveillance
+1 (646) 731-2452
larry.kay@kbra.com

Aryansh Agrawal, Analyst, CMBS Ratings Surveillance
+1 (646) 731-1381
aryansh.agrawal@kbra.com

Roy Chun, Senior Managing Director, CMBS Ratings Surveillance
+1 (646) 731-2376
roy.chun@kbra.com

Business Development Contact

Dan Stallone, Senior Director
+1 (646) 731-1308
daniel.stallone@kbra.com

More News From KBRA

KBRA Assigns Preliminary Ratings to GS Mortgage-Backed Securities Trust 2026-NQM1 (GSMBS 2026-NQM1)

NEW YORK--(BUSINESS WIRE)--KBRA assigns preliminary ratings to 10 classes of mortgage-backed certificates from GS Mortgage-Backed Securities Trust 2026-NQM1 (GSMBS 2026-NQM1). GS Mortgage-Backed Securities Trust 2026-NQM1 (GSMBS 2026-NQM1), is a $410.6 million RMBS transaction sponsored by Goldman Sachs Mortgage Company (Goldman Sachs). The transaction is collateralized by a pool of 1,076 fixed-rate residential mortgages (FRM; 100.0%), and includes a meaningful concentration of collateral that...

KBRA Assigns AA Rating to Chicago Transit Authority Sales Tax Bonds Series 2026A (Second Lien) and 2026B (First Lien); Outlook Positive

NEW YORK--(BUSINESS WIRE)--KBRA assigns a long-term rating of AA to the Chicago Transit Authority, IL's (CTA) Second Lien Sales Tax Receipts Revenue Project and Refunding Bonds, Series 2026A and Sales Tax Receipts Revenue Refunding Bonds, Series 2026B. Concurrently, KBRA affirms the AA rating on the CTA's outstanding Sales Tax Receipts Revenue Bonds (First Lien) and Second Lien Sales Tax Receipts Revenue Bonds. The Outlook for both liens remains Positive. Proceeds of the Series 2026A Bonds will...

KBRA Assigns Preliminary Ratings to BBCMS 2026-5C40

NEW YORK--(BUSINESS WIRE)--KBRA is pleased to announce the assignment of preliminary ratings to 13 classes of BBCMS 2026-5C40, a $834.4 million CMBS conduit transaction collateralized by 44 commercial mortgage loans secured by 59 properties. The collateral properties are located throughout 25 MSAs, of which the three largest are Los Angeles (13.7%), New York (12.9%) and Las Vegas (9.0%). The pool has exposure to all major property types, with five types representing more than 10.0% of the pool...
Back to Newsroom