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.
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