Russia-Ukraine conflict cools white-hot US CMBS issuance market

The CMBS market saw record issuance in the first two months of the year.

The US commercial mortgage-backed securities market started strongly in 2022 as conduit, single-asset/single-borrower and commercial real estate collateralised debt obligation issuance surged through the end of February. However, the market has softened as Russia’s invasion of Ukraine has created uncertainty for investors and issuers. 

Through the first two months of the year, the conduit market saw issuance of almost $8 billion, with about $1.4 billion of CRE CLOs. Meanwhile, the SASB market realised $18 billion of deals and the large loan market has seen about $4 billion of issuance. 

“It had been lights out in [the first quarter] of 2022 – volume was extraordinarily high – until the war began. Since then, lending has slowed and that will likely impact issuance for the remainder of Q1 and the early part of Q2. Until fighting began in Ukraine, it was a very encouraging start to the year,” said Manus Clancy, senior managing director at New York-based data and analytics provider Trepp.

Prior to the conflict, early indications suggested the market was on track for an extremely strong year, primed to rival the $110 billion seen in 2021. Last year, the biggest since the record of $270 billion set in 2007, was more than double 2019’s pre-pandemic pace. 

“Lending had been incredibly robust since early 2021, but the lending machine has slowed since shooting began in Eastern Europe,” said Clancy.

A key factor expected to fuel growth this year was the SASB market, which saw $12.4 billion of issuance in March – more than double where it stood last year on the way to a record $79 million in originations. This could cool a bit due to uncertainty, market participants told affiliate title Real Estate Capital USA.

In the bigger picture, asset classes that proved more resilient to the pandemic were behind much of the growth in 2021 and early this year. 

“There are many parts of the market that just performed great even during covid, multifamily did great, industrial really did spectacularly. Even some elements of retail did great – grocery anchored did very well,” said Clancy.