Commentary

Quarterly U.S. CRE CLO Report: Higher Cost of Financing Weighs on New Issue Volume in Q3 2022

CMBS

Summary

Rising interest rates continue to drive commercial real estate collateralized loan obligation (CRE CLO) issuance lower as Q3 2022 originations totaled just $3.1 billion in four deals, down more than 65% from the prior quarter. Given the near-term outlook for continued interest rate increases and broader macroeconomic dislocations, DBRS Morningstar projects issuance in Q4 2022 to be similar to the $3.1 billion in Q3 2022.

Total volume for the year through September is $29.0 billion, which is 11.3% lower than last year's nine-month volume. DBRS Morningstar expects YE2022 issuance to exceed $30.0 billion, but compared with 2021 peak levels, could be down by 35% to 40%. The redeeming factor for 2022 issuance was the beginning of the year, when Q1 2022 hit a quarterly record with more than $16.5 billion of issuance. It is unlikely the Q1 2022 quarter will be repeated anytime soon and could very well be as high as next year's total volume.

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