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A Review of Q2 2016 Property Fundamentals

Los Angeles – July 31, 2016 – Reis reported updated Q2 national property fundamentals this month. The apartment vacancy rate remained unchanged in the second quarter at 4.5% while office vacancies declined by 10 basis points to 16%. Retail vacancies also declined by 10 basis points to 9.9%. Overall, sales transaction volume is down across all major property types. Of note, rent growth for class “A” apartments has slowed with new supply on the horizon. The national vacancy rate remains healthy, but the trends of slowing fundamentals and lower affordability continue to dominate discussions, particularly in gateway markets.

The Mortgage Bankers Association (MBA) reported a rise in originations for Q2 2016. Office and industrial led the overall increase in commercial/multifamily lending volumes when compared to Q2 2015. Among investor types, the dollar volume of loans originated for commercial bank portfolios increased by 33% YOY. There was a 15% YOY increase in volume by life insuance companies, a 3% decrease by GSE’s, and a 40% decrease by CMBS originators.

After a quiet June, five conduit deals priced in July for a total of $4.3b, with spreads generally ratcheting tighter with each deal. New issue volume continues to be significantly lower than last year, with the YTD conduit total now at $22.8b versus $36.5b through the end of July last year. In the SASB space, 3 deals priced for just over $1b, although one deal (~300mm) was entirely preplaced. Conduit spreads put in a very strong performance in July with spreads tighter across the board. AAA LCF bonds tightened by close to 15bps, while A- bonds put in the strongest performance, tightening over 100bps for good/average names. Across the capital stack, we continue to see significant tiering across deals with weaker names seeing much less tightening.

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Alice EricsonA Review of Q2 2016 Property Fundamentals