Los Angeles – July 31, 2017 – CBRE reported continued growth and stability for the U.S. lending market. Despite an increase in short-term interest rates by the Federal Reserve in June, capital markets remained quite favorable in Q2, with rising equity prices, tight spreads and limited volatility. The yield curve has flattened over the past quarter, reflecting the Fed’s interest rate policy changes.
CBRE’s Lending Momentum Index, which tracks loans originated by CBRE Capital Markets, shows that loan closings edged higher between March and June, and are 27% above the year-earlier level. Volume improved across all major lending groups, as capital is readily available. Reflecting the favorable capital market environment, CMBS issuance revived in Q2 and is well ahead of 2016’s pace. CBRE’s measure of loan underwriting continued to show stabilization in Q2. Overall average debt service coverage, LTV’s and debt yields were virtually unchanged from the previous quarter.
The July new issue calendar was relatively robust for a summer month, with four conduit deals pricing for $3.575b, bringing the YTD total to $24.3b across 26 deals. Pricing for the LCF AAA ranged from S+91-99, AA-ranged from S+135-150 and A- ranged from S+160-190. In SASB space, nine deals priced this month. There were five fixed rate deals ($1.3b) and four floating rate deals ($2.35b) for a total of $3.6b. While the number of SASB deals seems high, dealers have been seeing such strong demand given the lack of recent supply that several deals were either entirely preplaced or primarily preplaced before being announced. Secondary spreads on pre-RR bonds were tighter across the board. Spreads were 2-4bps tighter in AAA, which is a strong performance given the overall level of rates. AA-spreads were only about 2bps tighter, as they continue to lag other classes given the unique position in the capital stack (not AAA, but not enough yield for credit buyers). A- and BBB- were 10-15bps tighter as credit continues to outperform. We would expect August to be relatively light on the new issue front, although we already know of at least two conduit deals slated to come to market in early August.
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