Los Angeles – January 31, 2018 – According to CBRE Research, in Q4 2017 the lending market experienced favorable pricing as origination volume eased up slightly. Despite an increase in short-term interest rates in December, the enactment of comprehensive tax reform contributed to strong investor sentiment. This environment has been favorable to CMBS conduit and priviate commercial mortgage pricing. The CBRE lending Momentum Index fell by 1.2% in Q4 2017. As of December, the index is down 15.9% on a year-over-year basis. Loan underwriting turned slighly more aggressive in Q4 with the average commercial LTV up to 60.9% and the average multifamily LTV up to 71.7%. The average constant and debt yield was 5.72% and 9.09%, respectively. The percentage of loans carrying intrest-only terms rose to 66% in Q4 from 57.8% in Q3.
As is typical for January, issuance was light on the conduit side, with only 2 conduits pricing for $2.45b. Both deals priced very well at the exact same levels up and down the stack. The AAA priced at S+66 versus a tight print of S+70 in 2017 and an average December print of S+85. The AA- and A- bonds priced at S+105 and S+150, respectively. The AA- surpassed the tight print of 2017 of S+118, but the A- tied the tight print in 2017. Still, both tranches priced significantly through average December pricing of S+135 (AA-) and S+198 (A-). On the SASB side, 2018 started off on a much more robust note, with seven deals price for a total of around $2.4b. Of that amount, two were fixed rate deals ($435mm) and five were floating rate deals ($1.96b). in 2017, only one small SASB deal priced in January for under $500mm. In addition, two CRE CLOs priced for $647mm, although one of the deals ($279mm) was never even announced and was more of a one-off financing trade for the issuer. With minimal new issue supply and a general risk-on appetite across all markets, spreads in the secondary market tightened significantly to start the year. Spreads ended the month tighter by roughly 10bps on AAA, 15-25bps on AA-/A- and 50+bps on BBB- bonds. Wider trading bonds tightened the most, leading to flattening of the tiering curve across the stack.
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