Los Angeles – August 31, 2016 – As it has been historically, August was a relatively uneventful month as it relates to whole loan originations. CorAmerica CML spreads tightened by 5-10 basis points, which was consistent with a downward trend in corporate bond spreads. The market is paying close attention to CMBS originators, some of which have been willing to offer economic terms that can be very competitive with life companies on certain transactions. The agencies will likely shift their focus to 2017 in the near future, which may allow them to be even more competitive as the mandate for the new year is finalized.
Property fundamentals have been steady, but many investors are starting to take a hard look at current real estate values. Situs RERC recently discussed CRE from a value vs. price perspective and whether it is a good time to buy, sell or hold real estate. Overall, they feel CRE is a fair bet where values and prices are not too disconnected, while acknowledging that risk is increasing as values vs. prices are deteriorating over time. Situs RERC’s value vs. price rating is the lowest they have seen since the first quarter of 2011, an indication that prices are higher than value for CRE as a whole.
In CMBS, August started off on a very strong note driven by the execution of the WFCM 2016-BNK1 deal, which was the first attempt at a risk retention compliant deal. The deal was extremely well received and priced significantly tighter than the prior deal and driving in secondary spreads in the process. Away from the risk retention component, the deal’s top line statistics (weighted average LTVs, DSCRs, etc.) also looked attractive, which likely impacted the execution as well. In total, 4 conduits deals ($2.9b) priced in August bringing the YTD conduit total of $25.7b, still significantly behind last year. While the other 3 deals weren’t able to achieve the BNK1 spreads, they all priced extremely well with the mezz classes trading through secondary spreads. Away from conduit, 3 SASB deals (~$1.3b) and 2 CRE CLOs (~$795mm) also priced in August. The momentum from the BNK1 deal clearly impacted spreads early in the month, but some of the tightening on the follow was erased as we headed toward month-end. While the leak wider was partially due to the quiet end of summer time period, investors also seemed to reject some of the unwarranted generic tightening that impacted deals with weaker credit profiles.
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