Capitalizing on CMBS: A 2021 SS&C Intralinks Report

Like so many sectors that faced pandemic-driven disruption in 2020, the commercial mortgage-backed securities (CMBS) market faced unique challenges. Struggling overall, CMBS was down by more than 40 percent as compared to pre-pandemic figures. However, in 2021 businesses and economies began to reopen, much to the delight of investors. S&P forecasts now indicate that 2021 CMBS issuance could reach USD 80 billion in the U.S. alone.

Given these wild swings, many questions remain. To learn more, SS&C Intralinks partnered with Risk.net to assess the CMBS outlook in North America and Europe. Together, we surveyed CMBS issuers and investors in these regions, asking for their insights into the market and gleaning their views on the risks and challenges they face as they pursue deals.

The survey was conducted between July and September 2021, gaining the opinions of 107 respondents (46 issuer-side and 61 investor-side). The resulting report charts the changing risk-management priorities of issuers and investors. It offers feedback on the resources currently available and reveals insights that can help maximize value in the deal process.

Bulls on parade

Overall, investors admitted to being hungry for yield, and bullish on the CMBS market over the next 12 months. Almost 80 percent of respondents said that they are likely to increase their investment activity. However, it also appears that CMBS deals are notably different in 2021 than they were pre-pandemic. Single-asset, single-borrower (SASB) and commercial real estate collateralized loan obligations (CRE CLOs) are significantly outpacing conduit CMBS, which tend to dominate the market in “normal” years.

The report also found that technology has become an even more important factor in achieving optimum deal efficiency. Respondents overwhelmingly agreed that the right technology was critical when handling large volumes of data. Those surveyed cited the need for improvements to risk management processes. They are regularly faced with increased scrutiny from internal compliance teams and a greater need to enhance the security of their collaboration with deal participants.

Despite the near-universal importance put on technology, there seems to be widespread doubt that firms are properly equipped. Almost half of the respondents rated the efficiency of their current resources, systems, and processes as just three out of a possible score of five. Not a single respondent gave their organization top scores. Clearly, there is much room for improvement.

An order of optimism with a side of caution

Respondents also shared another barrier to optimum efficiency: a lack of standardized deal structures. There are already many differences between conduit CMBS and SASB deals. They can range from the potentially tens of loans in a conduit versus the one-to-five in a SASB, with financial covenants and pre-payment fee requirements making things even more complex.

While the report points to a promising year ahead for CMBS investors, uncertainty weighs heavily on dealmakers’ minds. Respondent sentiment indicates that firms must step up their efforts to adopt and incorporate the most efficient, secure and broadly vetted technologies to make deals as productive as possible. An evolving market — one that favors SASBs and CRE CLOs over conduit CMBS, for example — means steep learning curves that require better, more integrated systems.

To read the full report and gain direct insights from respondents, click here.