Investors in the commercial mortgage-backed securities market may be getting choosier in what has been a surprisingly strong year so far for new deals.
Morgan Stanley Capital withdrew a $1.28 billion offering backed by a Blackstone-owned portfolio of 62 industrial properties totaling 10.3 million square feet, according to Fitch Ratings, a bond rating firm.
Morgan Stanley, Barclays Capital Real Estate, Bank of America, Goldman Sachs and JPMorgan Chase were scheduled to originate the loan to affiliates of Blackstone Real Estate Partners IX, according to Fitch's presale analysis.
The withdrawal follows what a Bank of America analyst called an oversaturation of CMBS offerings that hit the market last month, which may be pushing up borrowing costs for some.
Morgan Stanley’s single-borrower deal would have been the 47th such deal of 2024, bringing the year-to-date issuance total to nearly $30 billion, according to CoStar data. That compares to just 12 such offerings totaling $6.3 billion in the same time frame last year.
One-third of this year’s volume hit the market in May, a pace that could not be sustained, according to Alan Todd, CMBS strategist for Bank of America Securities. That pace was 111% over the monthly average of the four preceding months.
“In April and May alone, there were 25 deals,” Todd told CoStar News in an interview. “When you get that kind of activity and deals just keep coming and keep coming, I think investors in many instances are forced to pick and choose among which ones they even want to analyze.”
Blackstone has been the most active institutional investor tapping the CMBS market this year, having refinanced more than $15.5 billion in properties, according to CoStar data.
“I think the combination of a significant amount of issuance and a significant amount of Blackstone issuance just led to pricing levels that [Morgan Stanley and Blackstone] felt they didn't need to come to market, and they just decided to wait,” Todd said. “In a counter-intuitive sense, I think it's almost a good sign that we're starting to see some more peering and discernment among investors to what they're willing to accept.”
The refinancing of this particular portfolio was just something opportunistic that Blackstone wanted to accomplish, according to Todd.
“When [pricing] didn't work out to maybe what they'd hoped, they just decided to wait,” he said. “I think it's very different than having properties that are coming up on the heart [or imminent] maturity and have troubles.”
Morgan Stanley did not respond to CoStar News' request for additional information. Blackstone declined to comment.
The offering pulled from the market was not essential to Blackstone as the New York private equity giant still has 15 months of maturity on an existing loan in the portfolio. The properties that would have backed Morgan Stanley's loan are currently securitized in a 2020 deal.
Along with Fitch, Moody’s Investors Service was on tap to rate the offering. Both bond rating firms were prepared to give their highest ratings, AAA, to more than half of the bond classes to be issued, according to their presale analysis.
Among the strengths of the offering were the institutional quality sponsorship of Blackstone, strong occupancy and ongoing leasing success.
Moody’s and Fitch analysts on the deal did not respond to requests for additional information.