Kroll Bond Rating Agency (KBRA) releases December’s CMBS Trend Watch.

CMBS private label pricing volume was $5.1 billion in December, bringing fourth-quarter total volume to $18.1 billion. When the dust settled on 2018, private label CMBS issuance came in at $76.4 billion, 11.4% below full-year 2017.

We are aware of several transactions slated for first-quarter 2019, despite recent volatility in the broader capital markets. These include up to a dozen single-borrower deals, eight conduits, and as many as four commercial real estate collateralized loan obligations (CRE CLOs). To the degree volatility continues, however, it could dampen issuance activity.

In our Spotlight section this month, we review the Houston office market. With oil recently falling to 18-month lows in late December, there are concerns that a recovery in the Houston economy could stall if oil’s market price remains below $50 per barrel for an extended period, according to the University of Houston’s Institute for Regional Forecasting. At these levels, the institute estimates that the region could lose anywhere from 10,000 to 20,000 energy-related jobs. The Federal Reserve Bank of Dallas’ Q1 2018 quarterly survey also noted that companies need oil prices at or above $52 per barrel to profitably drill new wells. This would likely have an impact on Houston’s office demand-side fundamentals. We have identified 123 loans totaling $3.1 billion across 97 CMBS 2.0 transactions that have Houston office exposure.

New issuance activity in December comprises pre-sales for six U.S. deals ($4.2 billion), including four conduits ($3.3 billion), one CRE CLO ($600.0 million), and one SFR ($226.1 million). Additionally, KBRA published a pre-sale for Salus (European Loan Conduit No. 33) DAC, a European single-borrower transaction (£367.5 million).

Surveillance activity includes a review of 343 rated classes, of which 339 are affirmed, three upgraded, and one downgraded. In addition, KBRA highlighted 57 KBRA Loans of Concern (K-LOCs), which consist of specially serviced and REO assets as well as non-specially serviced loans in default or at heightened risk of default. We also published five other notable releases regarding special servicing transfers and rating agency confirmations (RACs) during the month.

The three-month rolling average IO Index increased for the second consecutive month to 58.6% in December from 54.0% in November.

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.