Los Angeles – June 30, 2017 – The key takeaways from the MBA’s First Quarter 2017 Commercial/Multifamily Data Book indicate market activity downshifted at the start of 2017. Markets continue to move forward, but the rapid increases in property values, transaction volumes and other fundamentals that characterized the post-recession period have given way to more regular changes tied to the economy as well as supply and demand.
- Property sales started 2017 slowly, with Q1 sales of the major property types down 19 percent compared to Q1 2016. Multifamily led the declines – with sales transactions 35 percent lower than what was seen a year earlier. Sales of office properties were down 15 percent, retail was down 10 percent, and industrial properties were up 3 percent.
- Multifamily properties remain the key force behind overall mortgage origination trends, and the GSEs continue to drive multifamily originations. Loans originated for GSEs increased by 33 percent year-over-year, commercial bank loans increased 11 percent, life insurance companies’ loans were essentially flat from first quarter of last year, and loans originated for CMBS decreased 17 percent.
- Total commercial/multifamily debt outstanding rose to $3.01 trillion at the end of the first quarter, the first time it has broken the $3 trillion mark. Multifamily mortgage debt outstanding rose to $1.17 trillion, an increase of 2.0 percent from the fourth quarter of 2016.
- Growth in property incomes and property values, coupled with low interest rates, have facilitated refinancing. By the end of the second quarter, the industry has largely worked through the so-called “wave of maturities.”
June was another active month in new issue conduit space, as 5 deals priced ($4.96b), bringing the YTD total to $20.7b across 22 deals. This actually brings 1H 2017 conduit issuance ahead of 1H 2016 conduit issuance of $19.6b. Excluding a one-off conduit deal brought by Ladder that priced wide to traditional conduit, pricing for the LCF AAA ranged from S+91 to S+94. For conduit mezz, AA- ranged from S+137-145 and A- ranged from S+175-190. The general consensus so far this year is that risk retention collateral (2017 vintage) does not look significantly more conservative than 2016 from an underwriting perspective, although the pricing suggests that investors are putting some premium on the vintage. On the SASB front, 8 deals priced for $4.52b, with 4 floaters, 3 fixed rate deals and one fixed/floating deal pricing this month. In addition, three CRE CLOs priced (1.37b) priced into very strong demand. Secondary spreads on pre-RR bonds were 1-2bps tighter at the top of the stack with AA- a touch wider. A- and BBB- were 5-15bps tighter as credit outperformed. New issue volumes are expected to slow somewhat as we head into mid-summer, but as of now, at least 3 conduit deals and two SASB are slated to come to market in July.
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