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US CMBS, CRE CLO volume rose in 2019 as interest rates fell

Issuance of private-label U.S. commercial mortgage-backed securities rose roughly 25% year over year to $96 billion in 2019, spurred by falling interest rates, and volume is expected to rise again in 2020, S&P Global Ratings analysts said.

The total for 2019 does not include the volume of commercial real estate collateralized loan obligations. Separately, Kroll Bond Rating Agency analysts said issuance volume for CRE CLOs totaled $19.2 billion for the year, up nearly 40% from 2018. There were 29 CRE CLO securitizations in 2019 compared to 25 in the prior year, but the average deal size grew 20% on an annual basis, Kroll said.

The Ratings team said in a presentation of their 2020 outlook that competition for commercial real estate loan originations from a variety of capital sources persisted throughout 2019, and should continue. Life insurers, banks and private debt funds — which often finance their lending through the CRE CLO market — are among the lenders competing with CMBS originators for deals.

The Ratings analysts noted that the percentage of interest-only loans in collateral pools reached a postcrisis high in 2019. Still, they said they expect stable credit quality for CMBS in 2020, citing commercial real estate valuations roughly 30% above their August 2007 peak; "generally well-behaved" fundamentals; a supportive macroeconomic environment; and continued investor demand amid low interest rates. Risks include trade tensions, Brexit, political uncertainty and the prospect of slowing economic growth, they added.

Single-asset, single-borrower transactions accounted for just under half of CMBS deals in 2019 and are likely to do so again in 2020, the analysts said.

Hotels accounted for roughly 20% of single-asset, single-borrower deal volume in 2019, while their share of conduit CMBS pools declined to 12% from 15%. Retail real estate's share of conduit pools fell to 22% in 2019 from 27% the prior year amid investor concern over the property type.