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Commercial Real Estate Monthly Recap – Nov. 2018

Los Angeles – November 30, 2018 – Corporate bond spreads continued to widen with “A” rated coporate bonds increasing by 13 basis points in the month of November on top of an 11 basis point increase in the month of October. “AA-” rated CMBS bond spreads increased 10-12 basis points over the past month. Spreads for commercial mortgage loans (CML) tend to move more slowly and in a tighter range as compared to corporate bonds. Although not reflected at November month-end, CorAmerica’s estimate of CML spreads have been increased by 10 basis points commensurate with the current relative value to alternative investments. The change in CML spreads has been reflected in the CorAmerica weekly pricing matrix as of December 7th.

The Mortgage Bankers Association (MBA) released the results of their Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations for the third quarter of 2018, which showed that a pullback in borrowing and lending across most property types contributed to an overall decline in total mortgage loan originations. Rising interest rates took some wind out of the market’s sails in the third quarter. Borrowing and lending backed by commercial and multifamily properties decreased 3 percent compared to the second quarter, and was 7 percent lower than a year ago. The CMBS and bank lending markets were the hardest hit. Meanwhile, borrowing backed by multifamily properties and from GSE lenders continued to grow. Compared to a year earlier, a decline in third quarter originations for health care and retail properties led the overall decrease in commercial/multifamily borrowing volumes. Among investor types, the dollar volume of loans originated during the third quarter for CMBS loans and commercial bank portfolio loans decreased from a year earlier. Loan originations increased for life insurance companies and the GSEs (Fannie Mae and Freddie Mac).

Conduit issuance picked up in November with 5 deals pricing for a total of $4.4b, bringing the year to date total to $35.9b. The first two deals of the month were brought by relatively strong issuers and the combination of weaker issuers, heavier than usual supply and volatile macro conditions helped push spreads wider throughout the month. The AAA LCF priced in a relatively wide range of S+90-100, with the AA- tranche ranging from S+130-165 and the A- tranche ranging from S+175-250. Secondary spreads widened throughout the month as well, although spreads bounced off their wides in the wake of more dovish comments from the Fed toward the end of the month. AAA LCF spreads ended the month about 5-7bps wider, with AA- bonds 10-12bps wider and A- bonds 15-20bps wider. BBB- bonds were roughly 30-40bps wider on limited trading. Away from conduit, four floating rate SASB deals priced for a total of $1.7b, with 4 CRE CLO’s pricing for a total of $2.95b. We expect a busy start to December as dealers try to get deals out the door prior to the last two weeks of December, which are traditionally very quiet.

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Alice EricsonCommercial Real Estate Monthly Recap – Nov. 2018