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.
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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%.
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