Paul Tyler

Los Angeles – May 31, 2017 – CML spreads remained flat over the month while the 10-year treasury declined along with spreads for other public asset classes. The index for “A” rated bonds declined 6.2 basis points to 92 bps. Although there are lower spreads in the marketplace, the average CML spread would provide 70-100 bps of relative value as compared to this indice, and 20-50 bps of relative value as compared to “BBB” rated bonds. For “BBB” rated bonds, the benefit of adding CML’s is improved by the lower Risk Based Capital (RBC) charge of .90% for CM1 rated investments and 1.30% for “BBB” rated investments.

The new issue calendar picked up significantly in May with six conduits pricing for a total of $5.14b, bringing the YTD total to $15.7b across 17 deals. In addition, four fixed rate SASB deals priced for $1.4b and two floating rate SASB deals priced for $1.56b. Away from one smaller deal that priced on the wider side, AAA pricing ranged from S+92-98, while A- spreads ranged from S+180-195. The last 3 deals all utilized the horizontal RR strip, which meant that those 3 deals did not have a traditional BBB- tranche. We saw an uptick in the percentage of retail in this month’s deals, with an average of 23.8% versus 20.8% for pre-May 2017 deals. The additional exposure is generally from strip or power centers though, as we haven’t seen weaker malls creep back into deals. In secondary, generic non-RR spreads were relatively flat at the AAA level, with spreads 4-10bps wider across the rest of the rest of the stack. Tighter trading AA- and A- bonds continue to feel soft in secondary as lower rates make it difficult for those to tighten. The calendar is expected to continue to be robust throughout June, with several new deals projected to price in both conduit and SASB.

Feel free to download our monthly email newsletter. To receive these reports each month, subscribe to our email list.

Los Angeles – April 30, 2017 – The MBA release their Quarterly Index of Commercial/Multifamily Mortgage Bankers Originations for the first quarter of 2017, showing a nine percent increase in commercial and multifamily mortgage loan originations for the first quarter of 2017, compared to the same period last year. In line with the seasonality of the market, first quarter originations were 27 percent lower than the fourth quarter of 2016. Multifamily properties remain the key force behind overall originations trends, with the GSEs continuing to dominate multifamily originations. Matching broader investment themes, financing backed by industrial properties also picked up, while retail declined. Click here for a link to the First Quarter 2017

Commercial/Multifamily Mortgage Bankers Index. We saw a significant slow down in the new issue market in April, as only 2 conduits priced for a total of $1.9b, bringing the YTD total to $10.6b across 11 deals. In addition, 2 SASB deals priced for a total of $1.76b, with $1.25b coming from a deal backed by a large pool of cold storage facilities. In the conduit space, the first deal of the month to price was the BNK4 deal (4/5) which was able to price tighter than the prior deal at all tranches. It took all the way until 4/28 for the second deal to price (Citi/DB), which likely benefited from the lack of supply as it was able to price its AAA LCF bond 3bps tighter than BNK4 even though interest rates were actually lower. Away from the AAA though, the mezz priced wider at all tranches versus the BNK4 deal. In secondary, generic non-RR spreads from AAA LCF down through the A- tranche were either side of flat, with BBB- tighter by roughly 15-25bps. Tighter trading risk retention bonds were generally wider on the month, particularly in the mezz tranches. While average to wider names were flat to tighter in the A- space, lower rates put pressure on the sub S+200 A- space which helped push the RR bond spreads wider. May is expected to be a busy month in both conduit and SASB, as dealers look to price deals before the summer starts.

Feel free to download our monthly email newsletter. To receive these reports each month, subscribe to our email list.

Los Angeles – Feb. 28, 2017 – The Senior Debt Team attended CREF/Multifamily Housing Convention & Expo which was held in San Diego from February 19-22. Attendance was up this year with an estimated 3,200 registered attendees. Several sessions/presentations were attended outlining various forecasts, topics of interest for the industry, and a keynote address from Mohamed A. El-Erian. Included below are a few takeaways from the conference.

• Life companies are hungry for business in 2017, but many are bringing in leverage levels. More conservative lenders are focused on leverage of 60% or less. Very aggressive pricing is being offered for these low leverage deals (120 – 140bps).
• CMBS is still there, but only certain type of Borrowers & deals make sense. 75% leverage, I/O, 250+ over swaps pricing.
• Most life company lenders had good years in 2016, and hope to keep those levels or slightly increase real estate lending in 2017. Most still find decent relative value in CML’s.
• Limited interest in hospitality properties. Most lenders are also weighing the changing retail dynamics and related impact on certain retail properties. • RE fundamentals are generally expected to be steady in 2017, but it is likely that RE values will be flat or decrease slightly.
• General expectations are for rising interest rates, steady, but modest GDP growth, manageable inflation, and low unemployment.
• Nearly everyone is monitoring the administration’s policies and assessing the likely impact on the economy and commercial real estate.

February was expected to see several conduits although only 3 deals ($2.5b) ended up pricing, bringing the YTD total to $3.8b which is significantly less than last year. Two SASB deals ($1.3b) priced in February as well. The month started off well with the BNK3 conduit pricing into strong demand. The BNK shelf has established itself as the premier RR issuer, with 3 banks (Well, MS, BAML) sharing the vertical RR strip. All classes priced tighter than the first deal of the year and tighter than the original BNK1 deal from 2016, which had been the local tights. The next two deals were considered to be much weaker from a collateral and/or sponsor perspective and priced accordingly, making the start to 2017 a rather bar belled one on the new issue front. AAA’s ranged from S+88 to S+95, while BBB- prints ranged from S+250-S+450. Secondary was a different story as spreads on weaker bonds continued to converge toward cleaner bonds, making the tiering there less pronounced than it has been historically. While weaker names tightened, the market was generically wider across the board away from AAA which was close to flat on the month. The CMBS market spent much of the month absorbing the various retail news stories which caused some volatility, particularly in the BBB- space, both in cash and synthetics. The month ended on a positive note though, with spreads tightening and the market evaluating two cleaner new issue deals that are expected to price in early March.

Feel free to download our monthly email newsletter. To receive these reports each month, subscribe to our email list.