Acquisition debt yields barely moved as CMBS refinancing repriced sharply

Trepp's loan-level look at the 2021 and 2022 private-label CMBS vintages finds a split that matters for anyone pricing acquisition debt. Refinance yields widened sharply over that stretch. Acquisition yields barely moved. In multifamily, the refinance debt yield climbed to 9.43% from 7.50%. The acquisition debt yield sat near 6.4%. The acquisition cap rate compressed to 4.31% from 4.95%. Buyers kept pricing to peak performance while the Federal Reserve raised rates; refinancing lenders had already reset expectations.

Acquisition intensity lines up with those results. Multifamily had the highest 2021 acquisition share, 47%. It also had the thinnest all-loan debt yield, 6.67%. Office ran a 24% acquisition share. Its debt yield was 9.04%. Retail, the most refinance-driven sector, had a 19% acquisition share. Its yield was 10.57%. Within multifamily, buying concentrated in secondary markets. The 2021 securitization totaled $19.32 billion. Of that, 77% came from outside the Top 25 MSAs. In those non-gateway markets, acquisition share ran 56%. In gateways, it was 17%. Non-gateway loans had a 5.36% cap rate. Their debt yield was 6.40%. Gateway loans carried a 7.73% debt yield.

The risk pooled on the acquisition side. A refi underwriter prices against current income. An acquisition lender prices against pro forma income. With cap rates compressing into the hiking cycle, a flat acquisition debt yield means the loan amount grew relative to income. That is leverage doing the work. The trade works only if the income arrives. The 2021 and 2022 vintages are now seasoned enough for maturing loans to test exactly that.