While the issuance of securities backed by commercial property debt got off to a strong start in the first quarter of this year, uncertainty about tariffs and their impact on economic growth has eroded sentiment in the CRE finance market.
To learn more about how tariffs and market volatility will continue to impact the CRE market, as well as the outlook for CMBS and CRE CLO issuance for the year, MortgageOrb interviewed Lisa Pendergast, president and CEO of the CRE Finance Council (CREFC).
Q: How is CRE market sentiment now and what is driving it?
Pendergast: Our first-quarter 2025 Board of Governors Sentiment Index fell nearly 31% from the prior quarter – the second-largest decline we’ve ever recorded, surpassed only by the pandemic onset in the first quarter of 2020. We’ve replaced pandemic uncertainty with tariff uncertainty. Economic outlook took the biggest hit, with 80% expecting worse conditions than just 12% last quarter. Here’s where it gets a bit interesting: opinions on interest rates are perfectly split, with 30% seeing positive impacts and 30% seeing negative impacts. We are clearly at an inflection point – navigating between higher economic uncertainty and potential opportunities from lower interest rates.
Q: How has issuance been in the first three months of 2025? And, what is your outlook for CMBS and CRE CLO issuance for the year?
Pendergast: Non-agency CRE securitized debt had its best first quarter since before the GFC, well exceeding expectations, with $45.9 billion in total issuance comprising:
- $27.1 billion in SASB;
- $10.5 billion in conduit; and
- $8.4 billion in CRE CLOs.
That said, new transaction announcements have slowed considerably since the President’s April 2 tariff announcement. Moreover, spreads have also widened sharply in the first half of this month. The combination could result in a slowing of new deal flow in the near term. That said, it is important to point out that this has nothing to do with commercial real estate credit and everything to do with market conditions.
Q: What is driving transaction volume and how is the market absorbing new supply? Are spreads wider because of the new supply?
Pendergast: Several factors drove the near-record issuance we saw in the first quarter, including less volatile benchmark rates (finally), nearly $1 billion of CRE loan maturities seeking refinance capital, and increased CRE transaction activity as many anticipate the worst of the price pressures are likely behind us.
New-issue spreads on CMBS and CRE CLOs widened significantly in the first half of April amid an ongoing wave of broader financial-market disruptions and mounting recessionary concerns stemming from the tariff announcements.
Going forward, markets are likely to remain topsy-turvy largely due to heightened macro-market volatility. Such an environment suggests that new-issue supply may come in fits and starts. If there is one thing that any new-issue market loathes, it is volatility. And yes, spreads have softened some. Last-cash-flow CMBS conduit AAA bonds are wider by about 28 basis points year-to-date at +103 basis points and BBB- conduit bonds are wider by 200 basis points to +625 basis points.
Q: The volume of new transactions was very busy in January and February, but deal flow slowed in March. What’s behind that slowdown in March and is it tied to the rollout of the White House tariff policy?
Pendergast: March was actually quite busy in terms of transaction volume, with $12.4 billion in total non-agency issuance. April has slowed considerably, with only $1.5 billion in issuance through mid-month. There is little doubt that the macro market volatility triggered by ‘Liberation Day’ and tariff implementation has and will continue to negatively impact the flow of CRE loan closings. With that in mind (and should it continue) we can expect for it to have a negative influence on securitization volumes.
Q: SASB deal flow continues to account for a significant segment of total issuance. Do you expect this to continue and what will it take to bring back more conduit transactions?
Pendergast: The mix of transaction types has indeed changed in recent years. Conduit CMBS, once the staple of the sector, have become a smaller slice of the CMBS pie. In 2021, for example, SASB (large single-borrower deals) issuance ($79.1 billion) far exceeded conduit ($31.4 billion) – a reversal from a decade ago when conduits dominated. This continued in 2024 with $70.5 billion of SASB issuance compared to $32.9 billion of conduit.
We expect this trend to continue this year as institutional borrowers increasingly favor SASB execution for large loans. In addition, it is easier for investors to gain comfort in SASB CMBS given their single-credit nature, especially during uncertain times. Heightened market volatility, elevated rates, increased competition, and the overall challenges to refinancing maturing loans have among other things made the execution of multi-loan conduit CMBS challenging to assemble and price.
Moreover, there is not only heightened competition amongst lenders for these loans, particularly as it relates to the increasing presence of debt funds and others, but also today’s elevated rate environment simply presents greater challenges to small- and mid-sized borrowers. CREFC has been working on this issue for the last year and, collectively, with market participants, with hopes of improving and evolving the attractiveness of the conduit product.