NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases May’s CMBS Trend Watch.
Private-label CMBS pricing volume was $5.6 billion in May bringing the year-to-date (YTD) total to $29.0 billion. While up by 19.4% year-over-year, this month’s volume was down from May 2017, when it was $8.1 billion. The difference is attributable to a lower deal count and higher proportion of SASBs, which on average had lower deal sizes when compared to last May’s issuance.
Looking at the forward pipeline, SASBs continue to have a major presence. By the end of June, we expect to see as many as a dozen or more announce along with up to five conduit transactions. In addition to the CMBS deals, we may see more than half a dozen CRE CLOs go out through July.
Full-term (FT) IO loans have been on the rise and have driven KBRA’s IO Index to record highs this year. In this month’s spotlight section, we highlight the rising concentration of full-term (FT) IO loans, which account for more than half of the loans securitized in conduits this year. While we don’t necessarily subscribe to the adage that FT IO loans are “pre-amortized,” the data does demonstrate that their going-in LTVs are generally lower, on average, than 10-year term/30-year amortization (10/30) loans. However, for the first time, the KLTV for full-term IO loans was higher than the beginning KLTVs for 10/30 loans YTD 2018. When drilling down to see what accounted for the difference, the results were somewhat surprising. Retail FT IO loans had the highest average KLTV among all property types YTD 2018. With both the broader market and CMBS concerned with the troubles plaguing the retail sector, the high aggregate KLTV on retail FT IO was unexpected.
On the ratings front, KBRA published pre-sales for six deals ($5.4 billion), including four conduits ($3.0 billion), one Freddie K-Series ($1.3 billion) and one CRE CLO ($1.1 billion). Surveillance activity included a review of 452 rated classes, including 435 that were affirmed, 15 that were upgraded and two that were downgraded.
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