Turbulence Ahead for Some Industrial Markets

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Why CMBS Financing Has Come Roaring Back in Commercial Real Estate link

• CMBS issuance has surged in 2024, with U.S. private-label CMBS issuance reaching $32.2 billion year-to-date, compared to $13 billion during the same period in 2023. This revival is driven by a liquidity crunch in commercial bank lending.

• The collapse of major banks like Silicon Valley Bank and First Republic has pushed borrowers towards CMBS for financing. Large institutions like Goldman Sachs and Blackstone are leading this resurgence with significant CMBS deals.

• The Trepp CMBS Special Servicing Rate increased by 80 basis points in April 2024 to 8.11%, reflecting rising defaults. However, the need for financing outweighs these risks, prompting continued reliance on CMBS.

• Higher spreads on CMBS products are benefiting both borrowers and investors. As of May 2024, 10-year super-senior AAA CMBS products priced at 131 basis points over the 10-year Treasury, down from a high of 159 basis points earlier in the year.

Built-for-Rent Housing Starts Continue to Increase link

• Built-for-rent single-family housing starts grew to 90,000 units in 2023, up from 81,000 in 2022. This marks a significant increase in this segment as it becomes a solution to the housing inventory crisis.

• The share of built-for-rent homes among all single-family housing starts doubled from 5% in 2021 to 10% in 2023. This is the largest percentage recorded since 1974.

• The Midwest saw the highest regional growth, with built-for-rent homes rising from 5% to 13% of the market over two years. The Northeast and South also experienced notable increases, indicating a widespread trend.

U.S. Home-Mortgage Lending Declines Again in First Quarter, Nearing Low Point link

• Home-mortgage lending fell by 6.8% in Q1 2024, marking the lowest level since 2000. Rising interest rates and high home prices contribute to this decline, with overall lending down nearly 70% since 2021.

• Purchase loans, refinance deals, and home-equity credit lines all decreased. Purchase loans dropped 9.9% quarterly to 565,000, while refinance deals fell by 1.9% and HELOCs slipped by 9%.

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Phoenix is named Zillow's best market for the class of 2024 link

• Phoenix tops the list for new grads due to its strong job market and rental affordability. Entry-level salaries and rental concessions make it a favorable choice despite relatively high rent costs.

• Albuquerque, Colorado Springs, San Antonio, and Portland, OR, follow Phoenix, offering a balance of job opportunities and affordable rent. Albuquerque stands out for its low rent-to-income ratio, making it an attractive option.

• For those prioritizing rent affordability, Des Moines is the best with grads spending less than 25% of their income on rent. Charlotte offers the most rental concessions, with 57% of listings providing incentives like free rent or parking.

Office and Retail Drive Overall CMBS Default Rate Higher link

• The total annual U.S. CMBS loan default rate for 2023 rose to 0.9% from 0.3% in 2022. Cumulative defaults reached 18.5%, up from 17.9% in the previous year.

• Office default volume surged to $4.8 billion, representing 55.9% of the 2023 default volume, compared to $1.6 billion (49.4%) in 2022. Most office defaults occurred at maturity, similar to 2022 trends.

• Retail default volume also increased significantly, hitting $2.55 billion (29.7%) in 2023 from $1.1 billion (34.3%) in 2022. This spike was largely due to regional mall defaults.

• Defaults in the hotel, industrial, and multifamily sectors saw modest increases and together accounted for less than 10% of total defaults in 2023. This is a decrease from 15% in 2022.

Buckle Up: Turbulence Ahead for Some Industrial Markets

This Is One of the Nation’s Fastest Growing Apartment Markets 

A key home price metric has skyrocketed since 2019 

Small Markets that Have Not Recovered from COVID-Era Job Losses 

Mapped: The Real GDP Growth of U.S. Regions in 2023

That's all, folks.

Cheers,

Vidit

P.S - Read past newsletters here