Los Angeles – April 30, 2018 – According to the CBRE Q1 2018 U.S. Lending Report, lending markets remain strong, despite recent market volatility. Real estate capital markets remained in good shape, with healthy loan production volumes and favorable credit spreads for borrowers. As investors anticipate additional short-term rate increases by the Federal Reserve this year, the yield curve has begun to flatten. By mid-April, the spread between ten-year and two-year Treasury bonds was at the tightest level since before the 2008 recession. Through February, combined Fannie Mae and Freddie Mac multifamily loan purchase volume of $15.6 billion was below the record-setting pace of $20.6 billion at the same time last year. For all loans tracked by CBRE the percentage of loans carrying interest-only terms remained at 66% in Q1, and there has been no substantial deterioration in underwriting measure over the past few quarters. The average LTV fell slightly in Q1 to 59.8% for commercial properties and 68.3% for multifamily. The average debt yield and constant across all property types was 9.36% and 5.89%, respectively. The full report is available upon request.
Conduit issuance was light in April with only 3 deals pricing for a total of $2.4b, bringing the YTD conduit total to $12b across 12 deals. The AAA LCF classes all priced in the 80’s, after mostly 70’s prints in February and March, and 60’s prints in January. The AA- bonds priced in a range from 120-135, while the A- bonds priced in a range of 165-205; both of which are generally wider than March prints. Overall, the new issue market felt relatively weak, as investors seemed to favor secondary bonds. In SASB new issue space, we continue to see deals being fully or partially preplaced into strong demand. Four deals priced in April for a total of $1.9B. There were 3 floating rate deals for $1.4B and one fixed rate SASB deal for $500mm. One CRE CLO priced for $826mm. In the secondary market, AAA LCF bonds managed to tighten around 2-4bps, while BBB- bonds tightened 5-10bps. The bid sides for the middle of the stack was quoted as being a touch wider on the month, but the market felt more firm than that. Dealers were generally cautious about showing strong stock bids out broadly, given the softness in the primary market, but actual trading levels seem to be tighter for select names.
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