The second annual CREFC CRE CLO Conference, which took place in New York on Oct. 10, featured financing practitioners discussing the continuing evolution of the commercial real estate collateralized loan obligations space. Here are the main takeaways from the conference:
- CRE CLO issuance is currently on pace to exceed full-year 2018 volume with the closing of seven deals in the third quarter, bringing the year-to-date count to 21, just four short of the 2018 total, according to Kroll Bond Rating Agency. Three of the 10 deals that will close or launch this quarter, according to KBRA, are expected to be issued by new sponsors that are new to the space.
- Expect 2019 issuance to exceed $19.3 billion, a nearly 40 percent increase from last year’s $13.9 billion, KBRA researchers advise.
- Loan margins in the space remained low in the third quarter of 2019. KBRA-rated deals had an average loan margin of 3.46 percent, ranging from a high of 3.9 percent to a low of 3.23 percent. The low of 3.23 percent is a record low transaction average for a KBRA-rated CRE CLO, according to the agency.
- Overall, CRE CLO loan credit performance has remained positive, with only 0.7 percent of loans in the space either delinquent or in special servicing as of September 2019.
- On a property-by-property basis, multifamily is displaying resilience amidst a potential record year for new supply, according to Victor Calanog, chief economist with Moody’s Analytics Reis. On the other hand, there is increasing evidence of industrial fundamentals being weighed down by trade war-related issues.
- The “best thing about office is it’s not retail,” Calanog said, as office and retail fundamentals are still dealing with pressures from economic, demographic and technological changes.
- Phoenix, Albuquerque, N.M. and Knoxville, Tenn. are currently the top apartment markets for their effective revenue per unit, according to Reis data. Seattle, San Francisco and Raleigh-Durham, N.C. are the top office markets for their effective revenue per sq. ft. Tacoma, Wash., Orlando, Fla. and Columbus, Ohio are the top retail markets based on the same measure, and Richmond, Va., suburban Virginia and Fort Worth, Texas are top warehouse markets, Calanog said.