Los Angeles – September 30, 2017 – Property sales were 7 percent lower during the first half of 2017 than during the same period in 2016. Individual property sales were down 5 percent, sales of portfolios down 10 percent, and entity-level transactions down 36 percent. Among property types, sales of apartment properties were down 16 percent, retail property sales were down 12 percent, and office property sales were down 1 percent.
The dollar volume of industrial property sales was up 12 percent. Multifamily properties remain the key force behind overall mortgage originations trends, and the GSEs continue to drive multifamily originations. Loans originated for GSEs increased by 26 percent year-over-year, commercial bank portfolio loans decreased 21 percent, life insurance companies’ loans decreased 2 percent, and loans originated for Commercial Mortgage Backed Securities (CMBS) increased by 168 percent year-over-year. Property fundamentals generally remain strong, although the pace of improvement has downshifted from earlier periods. For most sectors, new construction activity remains robust, but growth in the pace of new development appears to have paused.
September was another relatively busy month in the conduit space with 5 new deals pricing for a total of $4.9b, bringing the YTD total to $33b across 35 deals. Pricing for the LCFAAA ranged from S+89-96, AA- ranged from S+140-165, and A- ranged from S+175-225. Not unlike prior months, we continue to see a wide range of collateral quality, sponsorship, and deal barbelling, which helps drive the variance across deals in terms of pricing. In SASB space, 6 deals priced this month. There were 4 floating rate deals ($3.16b) and 2 fixed rate deals ($683mm) for a total of $3.84b. Similarly to last month, several of the SASB deals were at least partially preplaced, including the bottom portion of the $1b floating rate Great Wolf Lodge deal, for which several tranches of cusiped mezz loans were also pre-placed. One $652mm CRE CLO also priced this month. Trading volumes in the secondary market were muted toward the beginning of the month, as investors tried to sort through potential hurricane impacts. The steady flow of new issue conduit also impacted secondary volumes, especially because dealers were able to provide status updates for properties located in impacted areas for new issue deals, while no such data is readily available for secondary deals. Flows did pick up toward the end of the month and generically, AAA and AS/AM bonds were flat to a touch wider, AA- and A- were both roughly 3-5 bps wider, while BBB- was quoted about 5-15 bps wider. Overall, it seemed like better deals were probably flat to tighter in the A- and BBB-space, while weaker deals were helping to push the overall sector wider. In addition, investors continue to penalize bonds with high percentages of hurricane exposed properties, but we expect these hurricane discounts to start to subside as more specific information emerges about these properties.
Feel free to download our monthly email newsletter. To receive these reports each month, subscribe to our email list.