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KBRA Releases Research – CMBS 2023 Sector Outlook: Continued Uncertainty

NEW YORK–(BUSINESS WIRE)–#KBRA–KBRA releases its CMBS 2023 Sector Outlook, which highlights key credit trends from 2022 and forecasts U.S. 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 2023. The report also discusses year-to-date (YTD) KBRA-rated CMBS conduit trends and metrics, takes a closer look at 2022 ratings activity, and outlines ratings surveillance expectations for 2023.

Lenders and investors have been scrutinizing deals more closely, reducing leverage, increasing pricing, or just moving to the sidelines as interest rates continue to rise. Borrowers appear to be retrenching and readjusting to the new reality of lower leverage and higher commercial real estate (CRE) mortgage rates, although some may just be waiting for rates to stabilize or even come down. In either case, market participants appear to be in a holding pattern.

Despite robust issuance as we entered 2022, the toll of rising interest rates, as well as its effect on the economic outlook, brought issuance levels down quarter-over-quarter for much of the year. Given the current interest rate and economic environment, we expect issuance volume will follow the 2022 quarterly trend and head lower in 2023.

Some key takeaways from the report include the following:

  • For full-year (FY) 2022, we estimate U.S. CMBS—conduits and single borrower/large loan—will end the year at $71 billion and CRE CLO volume at $29 billion. For 2023, we expect issuance to be down sharply during 1H, and we forecast that CMBS and CRE CLOs will, in the aggregate, be off about 29% from our current FY 2022 estimate.
  • Industrial and multifamily fundamentals continue to be positive, although both are seeing increasing supply. Current demand trends suggest the sectors will continue to have positive absorption, although both are forecast to have lower absorption levels in 2022 and 2023. Retail and hotel sector performance has generally exceeded market expectations, while office continues to struggle with structural shifts relating to remote work.
  • When reviewing conduit credit metrics, average conduit All-In Cutoff KBRA Loan to Value (KLTV) fell to 102.8% as of YTD 2022, its lowest level since 2013. Total subordinate debt dropped to 23.7% after reaching a high of 41.6% in 2020.
  • YTD through November 4, the upgrade/downgrade ratio was 1.45x. Most of the upgrades resulted from the strong rental housing market, which benefited Freddie Mac and single-family rental transactions. Of the downgrades, more than 75% occurred among transactions that previously experienced negative rating drift.

Click here to view the report.

Related Reports

About KBRA

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.


Larry Kay, Senior Director

+1 (646) 731-2452

Roy Chun, Senior Managing Director

+1 (646) 731-2376

Nitin Bhasin, CFA, Senior Managing Director

+1 (646) 731-2334

Eric Thompson, Senior Managing Director, Head of Global Structured Finance Ratings

+1 (646) 731-2355

Business Development Contact

Michele Patterson, Managing Director

+1 (646) 731-2397


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