Los Angeles – October 31, 2016 – The MBA released its third quarter 2016 data, which shows total lending backed by commercial and multifamily real estate for the first nine months of the year running 2% above last year’s pace, with Q3 2016 running 5% ahead of Q3 2015. This potentially record setting pace is driven by a combination of factors, including increasing property values, strong property fundamentals, the low interest rate environment, and an active transaction market. Under the surface there have been some interesting changes to the mix of property types from a year ago. An increase in loan originations for industrial and multifamily led the overall increase in lending volumes. MBA reported a 32% year-over-year increase in dollar volume for industrial properties, a 26% increase in multifamily properties, a 5% decrease for office properties, a 23% decrease for retail properties, a 30% decrease in hotel properties, and a 59% decrease in health care property loans.
Among investor types, as compared to the second quarter, dollar volume of loans for CMBS increased by 96% and increased by 35% for GSEs. On the flipside, origination volumes by life companies and commercial banks decreased by 4% and 25%, respectively.
In CMBS, 4 conduit deals ($3.8b), 6 SASB deals ($3b) and 2 CRE CLOs ($675mm) priced in October. YTD conduit issuance still stands significantly lower than YoY 2015 at $35.4b. Issuance started to pick up toward the end of the month and we expect a relatively busy November, as issuers look to clean out their pipelines ahead of the implementation of risk retention. New issue 10y AAA LCF bonds priced in a range of S+110bp to S+118bp and BBB- bonds priced in a range of S+590bp to S+615bp. New issue demand got a boost from rising interest rates which helped push spreads tighter even with the increase in supply. Secondary trading was very muted in October as buyer/sellers still seem far apart on spreads. In secondary, CMBS cash ended the month flat to a touch tighter at the top while spreads tightened 5-10 bps at AA- and below.
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