/perspectives/sector-views/cmbs-increasing-supply-in-2021

Commercial Mortgage-Backed Securities: Increasing Supply in 2021

Property performance remains under pressure, but senior CMBS have fully recovered from the COVID selloff.

March 11, 2021


This CMBS sector report is excerpted from the First Quarter 2021 Fixed-Income Outlook.

CMBS spreads have tightened significantly since the COVID-19 selloff in March 2020, and demand for CMBS remains high. Several factors have led to high demand and tighter spreads, including reduced volumes of new issuance, lower concentrations of retail and hospitality loans within pools, improving macroeconomic conditions, and rollout of the vaccine.

CMBS Spreads Are Likely to Continue to Tighten in the First Quarter

CMBS spreads have tightened significantly since the COVID-19 selloff in March 2020, and demand for CMBS remains high.

CMBS Spreads Are Likely to Continue to Tighten in the First Quarter

Source: Guggenheim Investments. Data as of 1.15.2021.

In 2020, new issuance within CMBS fell by 45 percent—conduit down 37 percent, single asset/single borrower (SASB) down 48 percent, and CRE-CLO down 56 percent—due to lower loan volumes from issuers as pandemic uncertainty persisted. Furthermore, investor demand for lower concentrations of retail and hospitality loans within securitizations constrained issuers even further as risks associated with those property types remain elevated.

Issuance Should Bounce Back in 2021 as Investor Confidence Recovers

In 2020, new issuance within CMBS fell by 45 percent—conduit down 37 percent, SASB down 48 percent, and CRE-CLO down 56 percent—due to lower loan volumes from issuers as pandemic uncertainty persisted. However, we expect higher issuance in 2021 over 2020 as optimism from issuers and investors grows.

Issuance Should Bounce Back in 2021 as Investor Confidence Recovers

Source: Guggenheim Investments, J.P. Morgan. Data as of 12.31.2020

We expect increased issuance in 2021 as optimism from issuers and investors grows due to stable market conditions, the rollout of COVID-19 vaccines, and a settled election offering clarity around policy related to commercial real estate. As we evaluate opportunities in both primary and secondary markets, we remain cautious and selective regarding which deals to pursue for two reasons. First, some pools will likely have incrementally higher concentrations of retail and hospitality loans. Even with the rollout of vaccines and positive economic trends, we believe these property types will experience some interruptions in cash flows through the next few years. Second, relief for borrowers through temporary loan covenant forgiveness and debt service forbearance is partially responsible for sustaining performance in the near term. Once these measures run out, the status of some loans marked as current could shift to delinquent.

One of the areas we are targeting in secondary markets is subordinate CRE-CLO bonds. CRE-CLO transactions, collateralized by short-term, floating rate, transitional commercial real estate loans, feature low loan-to-value ratios and remain money good in our stress analysis. These securities offer compelling carry, but because current prices are also at discounts to par, there is additional upside potential in the event of early loan payoffs and spread tightening.

—Peter Van Gelderen, Managing Director; Phil Hoehn, Vice President

 
Important Notices and Disclosures

This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. It contains opinions of the authors but not necessarily those of Guggenheim Partners or its subsidiaries. The authors’ opinions are subject to change without notice. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is no guarantee of future results.

Investing involves risk. In general, the value of fixed-income securities fall when interest rates rise. High-yield securities present more liquidity and credit risk than investment grade bonds and may be subject to greater volatility. Asset-backed securities, including mortgage-backed securities, may have structures that make their reaction to interest rates and other factors difficult to predict, making their prices volatile and they are subject to liquidity risk. Investments in floating rate senior secured syndicated bank loans and other floating rate securities involve special types of risks, including credit risk, interest rate risk, liquidity risk and prepayment risk. Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited, and Guggenheim Partners India Management.

©2021, Guggenheim Partners, LLC. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC.


FEATURED PERSPECTIVES

September 15, 2021

Weak Data and Fiscal Uncertainty Will Delay Fed Tapering

Bond yields could fall further as rising fiscal risks get priced in.

August 31, 2021

Looking at Yields in High-Yield Credit

A properly diversified credit portfolio should have exposure to both high-yield corporate bonds and bank loans.

July 30, 2021

Things Couldn’t Be Better

The COVID Delta Variant’s Looming Threat to Risk Assets.


VIDEO

Midyear Outlook 

Midyear Outlook

Brian Smedley, Chief Economist and Head of Macroeconomic and Investment Research, and Portfolio Manager Adam Bloch provide our macro and markets outlook.

Core Fixed-Income Conundrum 

Solving the Core Conundrum

Anne Walsh, Chief Investment Officer for Fixed Income, shares insights on the fixed-income market and explains the Guggenheim approach to solving the Core Conundrum.







Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC.

© Guggenheim Investments. All rights reserved.

Research our firm with FINRA Broker Check.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.