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Capital Markets Update Week of 12/10

December 10, 2024

Private-Label CMBS and CRE CLOs

Five transactions totaling $4.8 billion priced last week:

• BX 2024-GPA3, a $1 billion SASB backed by a floating-rate, five-year loan (at full extension) to American Campus Communities, a portfolio company of Blackstone, to refinance a portfolio of 32 student-housing properties
• TCO 2024-DPM, a $1 billion SASB backed by a floating-rate, five-year loan (at full extension) to Taubman Realty to refinance the Dolphin Mall in Sweetwater, FL
• BMO 2024-5C8, a $991.8 billion conduit backed by 40 five-year loans secured by 98 properties from BMO and nine other loan contributors
• FMBT 2024-FBLU, a $975 million SASB backed by a floating-rate, five-year loan (at full extension) to Jeffrey Soffer’s Fontainebleau Development to refinance the Fontainebleau Miami Beach hotel
• BBCMS 2024-5C31, an $872.5 million conduit backed by 39 five-year loans secured by 55 properties from Barclays, Starwood, and nine other loan contributors

By the numbers: Year-to-date private-label CMBS and CRE CLO issuance totals $110.1 billion, 145% ahead of the $44.9 billion for same-period 2023.

Spreads Narrow

• Conduit AAA spreads tightened by 8 bps to +77, and A-S spreads by 5 bps to +110. YTD, AAA and A-S spreads are tighter by 39 bps and 55 bps, respectively.
• Conduit AA and A spreads were unchanged at +145 and +175, respectively. YTD, AA and A spreads are tighter by 80 bps and 200 bps, respectively.
• Conduit BBB- spreads were unchanged at +450. YTD, BBB- spreads have tightened by 450 bps.
• SASB AAA spreads were tighter by 5 – 8 bps to a range of +100 to +122, depending on property type. YTD, spreads narrowed from a range of +143 to +212.
• CRE CLO AAA spreads were tighter by 15 bps to +145 / +150 (Static / Managed), and BBB- spreads were tighter by 50 bps to +400 / +425 (Static / Managed). YTD, they have narrowed from +200 (Static / Managed) and +600 (Static / Managed), respectively.

Agency CMBS

• Agency issuance totaled $6.9 billion last week, consisting of $5.6 billion in Freddie K, Multi-PC, and Q transactions, $1.3 billion in Fannie DUS, and $73 million in Ginnie Mae transactions.
• Agency issuance for the year totaled $112.2 billion, just 1% lower than the $112.8 billion for same-period 2023.

The Economy, the Fed, and Rates…

Economic Data

• Strong Job Growth: The economy added 227,000 jobs in November, rebounding from October's hurricane and strike-affected gain of 36,000 (revised up from 12,000). This exceeded consensus forecasts of 200,000 but came with mixed signals - the unemployment rate edged higher to 4.2%, and the job-finding rate fell to 21.3%, the lowest since the pandemic began.
• ISM Surveys: The ISM Manufacturing PMI rose to 48.4, signaling slower contraction, but continued challenges from high interest rates and policy uncertainty remain. ISM Services PMI fell sharply to 52.1, marking a three-month low and hinting at weakening demand.
• Consumer Sentiment: The University of Michigan's Consumer Sentiment Index rose to 74 in December, the highest since April. However, inflation expectations picked up to a five-month high of 2.9% for the year ahead, with Democrats particularly concerned about potential tariff impacts on prices. This uptick in inflation expectations could influence Fed policy decisions.

Fed Policy & Outlook

• Officials' Stances: Recent Fed commentary suggests increasing caution. Chair Jerome Powell indicated the Fed can "afford to be a little more cautious" given economic strength. Cleveland Fed's Beth Hammack said the Fed is "at or near" the point of slowing rate cuts. Chicago Fed's Austan Goolsbee characterized the labor market as "largely stable" despite data volatility.
• Rate Cut Expectations: Following the jobs report, traders increased their bets on an interest rate cut in December. The market-implied odds of a quarter-point rate cut on December 18 rose to about 90%. However, the upcoming CPI report (December 11) is critical to solidifying the Fed's rate decision.
• Structural Shifts: Some market participants, including BlackRock, argue traditional business cycle analysis may be less relevant given transformative forces like AI, though others warn against dismissing cyclical risks.

Market Reaction & Treasury Yields

• Equity Markets: The S&P 500 continued hitting new records, benefiting from the "Goldilocks" interpretation of the jobs data - showing enough weakness to keep Fed cuts on track while maintaining fundamental economic stability.
• Crypto: Bitcoin surged above $100,000 for the first time last week, a milestone hailed even by skeptics as a coming-of-age for digital assets. Investors are betting on a friendly incoming administration to cement cryptocurrencies' place in financial markets.
• Treasury Yields: Treasuries rallied on Friday following the mixed November employment report. The yield on two-year notes fell 4 bps to 4.10%, reflecting increased confidence in near-term Fed easing. The 10-year yield fell 3 bps to 4.15%.

Go deeper: You can download CREFC’s one-page MarketMetrics with statistics covering the economy and the CRE debt capital markets here.

Contact Raj Aidasani (raidasani@crefc.org) with any questions.

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CREFC Welcomes Commercial Real Estate Finance Industry to its Annual Miami Conference on January 12-15, 2025

December 10, 2024

Academy Award-winning filmmaker Ron Howard and U.S. Lieutenant General H.R. McMaster join as special guests. Industry veterans Barry Sternlicht and Jeffrey DiModica share their views on the 2025 outlook for commercial real estate finance and markets.

NEW YORK, Dec. 10, 2024 – The CRE Finance Council (CREFC), the trade association that exclusively represents the nearly $6 trillion commercial and multifamily real estate finance industry, will host its annual Miami Conference on January 12-15, 2025. CREFC's largest event of the year will bring together over 2,200 finance professionals to discuss the latest opportunities and challenges that are top of mind for the industry.

The Miami 2025 Conference serves as a benchmark for the industry, setting the tone for the year ahead. Unique panels staffed by seasoned industry professionals across the spectrum will examine lending for alternative CRE asset classes and explore the promise of AI and other innovations in CRE. The conference will also take a keen focus on how the industry is managing amidst escalating insurance costs, still elevated rates, and the role of strategic debt in CRE finance. A series of CREFC’s Industry Forum meetings will address issues impacting key segments of the market.

Former U.S. National Security Advisor, Lieutenant General H.R. McMaster kicks off CREFC Miami’s opening session with his views on current global events and geopolitical risks. A three-star general recognized for his leadership in Afghanistan and Iraq, McMaster will give an informative, in-depth, and refreshingly candid analysis of key geopolitical, technological, and security issues.

Academy Award-winning filmmaker Ron Howard will join Miami 2025 for a luncheon conversation. From the critically acclaimed Oscar-winning dramas A Beautiful Mind and Apollo 13 to the hit comedies Parenthood and Splash, Howard has created some of Hollywood’s most memorable films and series.

CREFC's Miami conference draws thousands of industry professionals each year and is viewed as the gold standard of CRE-related conferences. This year, key sessions include:

• The Starwood Conversation: What Lies Ahead in Commercial Real Estate Featuring Starwood Capital Group Chairman and CEO Barry Sternlicht and Starwood Property Trust President and Managing Director Jeffrey DiModica
• Reimagining Cities: Innovation at the Intersection of Technology, Mobility and Urban Development
• The State of Housing: Innovations, Alternatives, and Traditional Approaches
• Bid/Ask: Perspectives from the Trading Floor
• Bricks and Bots: AI and Innovation in CRE
• Industry Leaders Roundtable
• Potpourri: Lending on Alternative CRE Asset Classes
• Building on Leverage: Strategic Debt in CRE Financing
• CRE Financing Risk Amidst Skyrocketing Insurance Costs
• The Sunshine State: Opportunities and Challenges in a Booming Market

"We are excited to bring together leading commercial real estate finance industry market participants such as Starwood’s Barry Sternlicht and Jeffrey DiModica at our annual January Conference in Miami," said Lisa Pendergast, Executive Director, CREFC. “Add to that our speakers Academy Award-winning filmmaker Ron Howard and former U.S. National Security Advisor, Lieutenant General H.R. McMaster, and the conference becomes both a learning and entertaining event that helps kickstart the new year.”

"Our timely panel discussions will provide attendees with critical insights into challenges and opportunities facing commercial real estate finance in 2025. Panel speakers will examine new urban development trends and explore the untapped potential of AI and other technology-driven innovations in CRE. Also, industry veterans will focus on how commercial property owners manage escalating insurance costs and the role new sources of capital will play in CRE finance markets in 2025 and beyond.”

To learn more about CREFC’s upcoming conferences and events, please visit: https://www.crefc.org/events

About CREFC

The CRE Finance Council (CREFC) is the trade association for the nearly $6 trillion commercial real estate finance industry with a membership that includes approximately 400 companies and 19,000 individuals. Member firms include balance sheet and securitized lenders, loan and bond investors, private equity firms, servicers, rating agencies, and borrowers. For 30 years, CREFC has promoted liquidity, transparency, and efficiency in the commercial real estate finance markets, and functioned as a legislative and regulatory advocate for the industry, playing a vital role in setting market standards and best practices and providing education for market participants.

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Aleksandrs Rozens

ARozens@crefc.org

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Trump Nominates Former SEC Commissioner Paul Atkins as Next Chair 

December 10, 2024

President-Elect Donald Trump nominated former Securities and Exchange (SEC) Commissioner Paul Atkins on Dec. 4 to replace current SEC Chair Gary Gensler who will step down from the agency on Jan. 20.

• Atkins is the CEO of Patomak Global Partners, a fintech and risk management consultancy he founded in 2009.

Atkins is expected to embrace a deregulatory stance and develop a constructive relationship with the crypto industry.

• This is a sharp reversal from Gensler’s approach, which many market participants characterized as regulatory overreach and unnecessarily combative.
• Not surprisingly, his nomination has been received well by Republican lawmakers, as well as current SEC Republican commissioners.
• Current SEC commissioner Hester Peirce noted on X:

“We have a lot of work to do at the SEC to advance free markets, capital formation, investor choice, and innovation. I’m delighted that Paul Atkins will be returning to lead the effort.”

Atkins has received some bipartisan support. According to Politico, Sen. Kirsten Gillibrand (D-N.Y.) indicated she was likely to support Atkins’ nomination:

“He has the right experience, and I think he’s a commissioner that would work well with Congress.”

Yes, but: Not everyone is welcoming the announcement. According to Politico, Sen. Elizabeth Warren (D-MA), who will serve as ranking member of the Senate Banking Committee in the next Congress, stated that she is:

“Concerned about putting at the helm of the SEC a Wall Street lobbyist whose main contribution during the last financial crisis was to protest fines against the giant corporations that defrauded investors.”

What’s next: Atkins is expected to carefully review Gensler-era rulemakings and identify opportunities for potential rollback.

• However to repeal rules, regulatory agencies must use the notice and comment process, which can take several months or even years.
• Agency leadership also can guide staff priorities via enforcement, effectuating practical change outside the rulemaking process.

What's next: The SEC’s climate disclosure requirements, currently stayed by the SEC while the rule is in litigation, are likely in Atkins’ immediate crosshairs. Atkins and other former SEC commissioners wrote during the comment period that the [then] proposal “oversteps the Commission’s congressionally delegated regulatory authority.”

CREFC will monitor closely Atkins’ nomination and keep members apprised of significant regulatory and policy developments at the SEC.

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