KBRA Releases Research ? 5- and 10-Year Deal Credit Metrics
KBRA releases a report comparing the credit metrics between the 2023 5-year and 10-year conduit deals. In 2023, the commercial real estate (CRE) securitization market offered 5-year fixed rate loans to borrowers hesitant to lock in longer-term 10-year loans. This led to the market's first CMBS conduit deal issuance that solely comprised 5-year loans. Ten transactions followed, bringing the total 5-year issuance to $8.8 billion, representing 44.7% of the year's conduit issuance. Based on our current visibility, there are already two 5-year conduit deals queuing up for January, and we expect more will follow as the year unfolds.
Key highlights include:
- The all-in KBRA loan-to-value (KLTV) for 5-year deals was 92.4%, compared to 88.4% for the 15 10-year 2023 conduits, which is inclusive of existing subordinate debt and assumed amounts of permitted subordinate debt.
- Full-term interest-only (IO) loans were more concentrated in 5-year deals, representing 91.7% of the loans by balance, compared to 79.1% for 10-year deals.
- Despite higher IO concentrations, the in-trust KBRA debt service coverage (KDSC) for 5-year deals averaged 1.5x, below the comparable statistic of 1.65x for 10-year transactions, both of which were at historical lows due to the higher interest rate environment. The 5-year coverage was lower, partly due to its higher average loan coupon of 7.12%, versus 6.69% for 10-year conduits.
- Pools in general have become more concentrated based on loan count. For full-year (FY) 2023, 5-year deals averaged 29 loans, compared to 31 for 10-year deals. Comparatively, for FY 2022 the overall conduit deal average loan count was 48.
- Property type distribution was somewhat similar with the exception of industrial, which represented 17.3% of 10-year deals, which was 50% higher than 5-year deals (11.6%).
- Single-tenant exposure for 10-year deals was 25%, versus 16.8% for 5-year deals.
- The top five metropolitan statistical areas (MSA) for 10-year deals totaled 46.1%, and for 5-year deals, 55.8%.
Click here to view the report.
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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.
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