KBRA Releases Research - 2024 CMBS Sector Outlook: Cloudy, With a Glimmer of Hope
KBRA releases its 2024 CMBS Sector Outlook, which highlights key credit trends from 2023 and forecasts U.S. CMBS issuance activity for the new year. The report reviews the current lending environment and property fundamentals, as well as factors that may affect overall property performance in 2024. The report also discusses year-to-date (YTD) KBRA-rated CMBS conduit trends and metrics, takes a closer look at 2023 ratings activity, and outlines ratings surveillance expectations for 2024.
Many market participants have stayed on the sidelines waiting for better real estate prices as the commercial real estate (CRE) market continues adjusting to higher rates. Nevertheless, with fewer transactions taking place, especially among the more distressed properties, price discovery persists, as it is difficult to meet buyer and seller price expectations.
KBRA projects that issuance will bounce back from 2023 lows with a 23.6% year-over-year (YoY) increase, as the quarter-over-quarter (QoQ) positive trend experienced much of this year will persist in 2024, with increasing growth anticipated for 2H 2024. This assumes a somewhat steady interest rate environment, along with our expectation for a generally rocky capital and CRE market in the near term that will begin to exhibit signs of stabilization as 2024 progresses. This will be the result of an increasing number of borrowers accepting the new rate environment and lower valuations, and no new significant CRE or macroeconomic surprises. Additionally, given performance pressure on existing loans, we could see increased loan pool sales and reemerged securitizations of distressed debt, which could add to issuance volume not reflected in our 2024 forecast.
Some key takeaways from the report include the following:
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.
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