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Commercial Real Estate Monthly Recap – Jan. 2019

Los Angeles – January 31, 2019 – The Mortgage Bankers Association (MBA) just released the results of their 2019 Commercial Real Estate Finance (CREF) Outlook Survey, which presents information on what leaders of top commercial and multifamily origination firms expect to see in the year ahead. More than half (55 percent) of the top commercial/multifamily firms expect origination to increase in 2019, with one in eight (13 percent) expecting an overall increase of 5 percent or more across the entire market. Lenders remain eager to make loans: 100 percent of originators reported that in 2018 lenders had a “strong” or “very strong” appetite to make new loans and 100 percent expect lenders’ 2019 appetite to be “strong” or “very strong”. Borrowers are eager to take out loans: 88 percent of originators reported that in 2018 borrowers had a “strong” or “very strong” appetite to take out new loans and 78 percent expect borrrowers’ 2019 appetites to be “strong” or “very strong”. A number of factors – including long-term interest rates, new construction activity and the broader economy – are seen by a majority of originators as factors that could be potentially somewhat negative to the health of the commercial real estate markets in 2019, helping to explain the slight downshift in expectations compared to last year’s survey.

As expected, January was a very quiet month on the new issue front with no new conduits pricing. Three SASB deals totaling $2.35b priced, with the largest being a $1.17b portfolio of life science office buildings portfolio owned by Brookfield. One CRE CLO for $600mm also priced in January. In addition, Freddie priced one fixed rate 10 year deal off their K shelf for $1.3b. Secondary spreads bounced back in January, as macro volatility subsided and investor appetite increased without any new issuance since mid-December. AAA spreads were roughly 10bps tighter on the month, with AA- spreads tighter by 10-15bps. A- spreads were tighter by 25-35bps, while BBB- spreads were tighter by 45-60bps. While spreads look significantly tighter on paper, most investors agree that it was almost impossible to buy bonds near the wides in December so the real bounce back on the offer-side is less extreme. Conduit issuance is expected to pick up substantially in February, with several conduits expected to price.

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Alice EricsonCommercial Real Estate Monthly Recap – Jan. 2019