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Why CMBS Financing Has Roared Back in CRE

As major banks pull back from commercial real estate lending, CMBS is making a major comeback by adapting to today's market.

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Good morning. As major banks pull back from commercial real estate lending, CMBS is making a major comeback. Plus, Dollar Tree is considering selling or spinning off Family Dollar.

Today’s issue is brought to you by Viking Capital.

📊Poll: We asked subscribers about their outlook on multifamily construction yesterday. Scroll to the bottom to see the results!

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Why CMBS Financing Has Roared Back in CRE

As major banks pull back from commercial real estate lending, CMBS is making a major comeback by adapting to today's market, reports Commercial Observer.

Rebound: CMBS issuance has made a major comeback, with U.S. private-label CMBS issuance reaching $32.2 billion in the first five months of 2024, compared to $13 billion during the same period in 2023. The first quarter of 2024 alone saw $12.2 billion in CMBS issuance, up from $2.7 billion in the first quarter of 2023. This resurgence comes after a decline in issuance in 2023, where conduit CMBS dropped by 27% and SASB CMBS plummeted by 73%.

Trending: Investor interest in CMBS is also rising, with $24.6 billion in new securities purchased year-to-date through May 2024, nearly triple the amount bought in the first five months of 2023. This renewed interest is driven by the cost of capital, with borrowers enticed by the cost savings of CMBS loans—sometimes as much as 25 basis points cheaper than alternatives.

Between the lines: The Fed’s interest rate hikes have also pushed borrowers towards CMBS. With the fed funds rate at 5.5% and the 10-year Treasury note at 4.62%, the compressed spreads on CMBS products—131 basis points over the 10-year Treasury for AAA-rated tranches—make them more appealing.

Not without challenges: Despite its advantages, CMBS comes with challenges, particularly in distressed situations. The special servicer's role often leads to delays and misalignment of interests, as seen in the case of 1740 Broadway in Manhattan, where a defaulted $308 million CMBS note led to significant losses for junior bondholders.


Why it matters: CMBS represents 14% of all U.S. CRE lending. The recent banking crisis, which saw the collapse of Silicon Valley Bank, Signature Bank, and First Republic Bank, has led commercial banks to pull back from CRE lending. In 2023, dedicated commercial lenders closed $306 billion in CRE loans, a 49% decline from 2022's $595 billion. CMBS is filling this liquidity void, with major players like Goldman Sachs, Bank of America, and Wells Fargo leading the charge.

Do you believe CMBS is an attractive alternative for financing in today's market?

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Multifamily Investment Offering - 18%-22% AAR

Viking Capital presents Villas at Sundance, a 252-unit, first-generation multifamily asset built in 2012.

This asset is located in New Braunfels, TX, in the Texas Innovation Corridor along Interstate 35 between Austin and San Antonio. New Braunfels is the “Third-Fastest Growing City in the Country,” with a population growth of nearly 40% in five years. New major employers, entertainment centers, and tourism drive the city’s growth. 

This deal benefits from robust tenant demand due to population growth and a low-cost basis. With minimal new supply expected, Viking Capital secured this asset at a substantial discount, positioning this property as an exceptional investment opportunity. 

* Past performance and past distributions to investors may not be indicative of future results. An investment in real estate is speculative and subject to risk and as such there can be neither any assurance as to the final results of any such specific investment nor can there be any assurance that any investment strategy into securities offered by the sponsor will achieve specific investment goals. Securities are only available to verified accredited investors who can bear the loss of their investment.

✍️ Editor’s Picks

  • Big bet: Las Vegas is experiencing a condo boom as developers rush to meet the soaring demand for high-rise living among wealthy and out-of-state buyers.

  • Under the microscope: Bank OZK’s risky real estate lending model remains under scrutiny after its recent Citi downgrade. Notably, it’s the 55th largest US bank.

  • Nursing home nightmare: Florida's largest nursing home operator, LaVie Care, files for bankruptcy for the second time, citing $1B in assets and $10B in liabilities.

  • San Francisco resurgence: San Fran defies doomsday narratives with rising home sales and job growth, attracting investments despite challenges.

  • Labor market lows: Job openings fell by nearly 300K in April to 8.06M, down almost 19% YoY, signaling potential labor market weakening.

  • Tower saga: The second-tallest building in Minneapolis, Capella Tower, has been returned to lender MetLife (MET) due to market struggles.


  • Housing boost: To address the national housing shortage, HUD will offer FHA-insured financing for the purchase, refinance, and revitalization of manufactured homes.

  • Navigating the Belt: Major Sun Belt multifamily markets face an oversupply as rents in the region fell, with 673K new units added from 2021–2023.

  • Gulf Coast growth: Related Group is planning a $3B development in Tampa, aiming to challenge Miami as Florida's second-most-important city.

  • Holy redevelopment: A former East Village church was sold for $58M, and may host 570 affordable housing units for homeless individuals.

  • Expanding horizons: Ventas (VTR) anticipates investing $750M in future growth, focusing on senior housing with high yields and IRR.

🏭 Industrial

  • Long live the king: Microsoft (MSFT) snapped up 300 more acres in the West Valley from Dermody Properties, further cementing its position as the lead contender in Silicon Valley’s AI race.

  • Chilling success: BGFP International secured $72M for a 275KSF cold storage facility in Jacksonville, FL, with 53K pallet positions.

  • Last-mile boom: Amazon (AMZN) plans to double its distribution centers for same-day delivery, sparking potential growth in last-mile facilities.


  • Penny for your thoughts: Dollar Tree is considering selling or spinning off Family Dollar with JPMorgan's help due partly to mixed Q1 earnings.

  • Building buzz: Miami architect and investor Ira Giller plans a $21.6M mixed-use tower with offices and garages in the Mid-Beach area.

  • Revitalizing parks: Far South CDC is ready to transform a vacant Chicago site into apartments, retail, and parks with $15M in initial state funding.

  • Soured deal: Simon Property Group and Macerich plan to resume litigating a $100M stalled outlet mall project in Carson.


  • Media downsizing delivers: Susquehanna (SQCF) secured 74KSF in 30 Hudson Yards from Warner Bros. Discovery (WBD), relocating from its previous 54KSF space.

  • Silicon Valley steal: Hines (ZHGIIX) and Goldman Sachs (GS) sell a Sunnyvale tech campus for $100.8M, 46% below its 2019 purchase price in a struggling office market.


  • Going green: A Houston development secured a $46.6M loan for energy-efficient upgrades, including a luxury hotel and retail renovations.

  • Downgraded dreams: Despite lower expectations, 2024 US hotel revenue-per-available-room growth is revised to 2%, with higher-end hotels outperforming.

  • CRE finance insights: Smith Hill Capital and Bain Capital closed a $111M first mortgage loan for a 954-key hotel portfolio in NJ, GA, CA, and AZ.


According to Moody’s, calling current trends ‘a return to growth’ may be premature. While the numbers have certainly rebounded from their -55% bottom shortly after 1Q23, they’re still not in the green as a whole. The good news is that industrial and retail deals have already exceeded 2019 levels.

📊 What is your outlook for the apartment construction market in the next 12 months?

🟩🟩🟩🟩🟩🟩 Optimistic, conditions are improving (158)

🟨🟨🟨🟨⬜️⬜️ Negative, expecting further challenges (123)

🟨🟨🟨🟨⬜️⬜️ Uncertain, waiting for lower interest rates (120)

⬜️⬜️⬜️⬜️⬜️⬜️ Other (please specify) (23)

“I think that developers have overbuilt. I believe we will have an oversupply along with high interest rates causing further issues. ”

“Capitalism at its best........Supply is outpacing demand, and the cost of funding is more than double if you can get financing! Let's see where the chips fall. I believe this will have a long-term negative effect on all of CRE lending and funding availability”

“Austin MSA is severely overbuilt. Will take a couple of years to work through supply.”

“Interest rate relief would be welcome, but in Oregon our land use laws still create scarcity. Both projects i'm working on have 18 months of entitlements, so lots to work on as we wait for rates to come down.”

“Construction costs flatting a bit. No new supply means opportunity in 2-3 years for those who can deliver Be nervous when others are greedy and greed when others are nervous Demographics do not lie Wall of debt will trickle down over next 3-5 years and not provide all the immediate deal flow we are hoping for. ”

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