- The CMBS market has made material improvements during the past month. After spreads continued to widen during January and February and one issuance during the first week of March sold AAAs at S + 173 and BBB- at S + 825, there have been three conduit issuances since then that have each priced tighter than the previous with the most recent pricing AAAs at S + 129 and BBB- at S + 600. The hiccup in pricing early in the year and some general concern about how deep the bond buying market is for CMBS has led to a significant falloff in origination during the past three months. Commercial Mortgage Alert reported that YTD CMBS issuance as of April 1st was $19B which is off 36% for the same period during 2015.
- Because of the pullback in the CMBS market, we have seen some attempted repricing of investment sales due to either limited or more expensive financing options. Because many sellers view this as a temporary hiccup, there is an emerging bid-ask spread developing for less favored markets and property types.
- MBA recently released their 2015 Commercial Real Estate/Multifamily Finance Annual Origination Volume Summation and it confirmed that 2015 was a very active year for real estate lending with dedicated commercial real estate finance firms closing $503.8B in loans, just shy of 2007 originations. The report shows that commercial banks were the leading capital source closing $138.6B followed by CMBS at $99.4B. Although finishing in 6th place by investor group, REITs, Mortgage REITs, and Investment Funds saw a 68% increase in originations.
- The increase in lending activity from REITs, Mortgage REITs, and Investment Funds is anticipated to remain robust for the foreseeable future as balance sheet lenders like banks and insurance companies become more selective of opportunities as they play a guessing game of where we are in the cycle and are trying to avoid many “storied” or construction loans.
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