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March was Most Active Month YTD for New Issuance

Los Angeles – March 31, 2017 – The Mortgage Bankers Association recently released their Fourth Quarter 2016 Commercial/Multifamily Mortgage Debt Outstanding report, showing that the amount of commercial and multifamily mortgage debt outstanding is now $2.96 trillion, and continued to grow in the fourth quarter of 2016 as three of the four major investor groups increased their holdings. Between December 2015 and December 2016, commercial banks and thrifts saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt – an increase of $115 billion, or 11 percent. Life insurance companies increased their holdings by $26 billion, or 6.8%. CMBS, CDO and other ABS issues decreased over the course of the year by approximately 11%.

There are several life company lenders taking a risk off approach to their CML investment strategy that are willing to price certain transactions very aggressively. Several competition notes came in this month with the low end of the market represented by a spread of 115 bps for a 15-year fully amortizing loan structure on a low leverage multifamily property in the Pacific Northwest. Other low leverage deals were priced in the range of 130-140 bps, and those quotes often included a flexible prepayment structure as opposed to yield maintenance. Interest only is readily available at 65% LTV or less for multifamily loans. Competition increases dramatically for loan amounts over $20 million. With the exception of a 24% increase in the 1-month LIBOR, the yield curve remained relatively unchanged over the prior month. Coupon rates for long term, fixed rate commercial mortgage loans range from 3.75%-4.50%.

March was the most active month YTD for new issuance, as 5 bank-issued conduits priced totaling $4.86b, bringing the YTD total to roughly $8.7b  (across 9 deals so far). In addition, LoneStar also priced their own conduit ($758mm) but it seems like dealers are not considering that a “conduit” for issuance calculation purposes. Two CRE CLOs also priced ($931mm) and while no fixed rate SASB deals priced, two floating rate SASB deals priced ($1.2b), of which $1b was backed by the Willis Tower in Chicago. In the conduit space, we saw our first deals with a full horizontal RR piece (JP5 and JPMDB C5), one of which was purchased by LNR and the other by Barings. It still is not clear whether the market is differentiating deals by the type of RR structure, as pricing differentials to date seem more driven by generic spread conditions, collateral opinions and perceived liquidity. The strongest print of the month was the GS deal, which priced at or through the BNK3 deal at all tranches except AA-. Away from the LoneStar deal, the new issue AAA LCF bonds priced in a range of S+88 to S+98 with the BBB’s ranging from S+315 to S+365 (AA- ranged from S+120-140 and A- ranged from S+150-180). In secondary, we ended the month generally 3-5bps wider across the stack except for A-, which seemed closer to flat. The big retail news of the month was the announcement of the JCP store closures, which ended up having a pretty muted effect on  CMBS, as only 13 deals were impacted by 11 closures, with only 3 of those malls impacting post crisis deals.

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Alice EricsonMarch was Most Active Month YTD for New Issuance