Junior AAA subordination levels in conduit CMBS increased to 20.3% in 1H 2025, marking an increase of more than 10% from the full-year 2023 average of 18.4%. This trend is unsurprising, as average appraised loan-to-value (LTV) ratios have increased over four points to 56.6% during the same period. Notably, KBRA loan-to-value (KLTV) ratios for KBRA-rated transactions have also risen to 91.6% from 87.4%, while KBRA debt yield (KDY) has decreased to 10.5% from 11.1%. Overall, pools remain relatively concentrated in terms of loan diversity, with a continued high proportion of interest-only (IO) loans. Beyond deal-level metrics, the commercial real estate (CRE) market continues to face challenges from higher interest rates, weak office demand, and uncertainty stemming from the potential economic impacts of tariffs.
Barring any meaningful reversal in current trends, these deal dynamics and market factors suggest that credit enhancement (CE) is likely to hold steady or even increase from its…