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Capital Markets Update Week of 12/11

December 11, 2023

Private-Label CMBS and CRE CLOs

• In another active week for the market, two transactions priced:

- BX 2023-XL3, a $1 billion SASB backed by a floating-rate loan secured by 109 industrial properties across nine states

- KSL 2023-H5, a $736 million SASB backed by a floating-rate loan secured by 19 hotels totaling 3,102 rooms in six states and Washington, D.C.

• Four transactions are currently in the market, totaling ~$2 billion and comprising two conduits and two SASBs.
• Year-to-date, private-label CMBS and CRE CLO issuance stands at $43.6 billion, 57% behind the $100.4 billion for same-period 2022.

CMBS Spreads Tighten

• Conduit AAA and A-S spreads came in 2 bps to +130 and +175, respectively, while AA and A spreads tightened 10 bps to +240 and +390, respectively; BBB- spreads were tighter by 15 bps to +900.
• AAA SASB spreads were tighter by 3 bps, ranging from +160 to +187, depending on property type.
• AAA and BBB- CRE CLO spreads were unchanged at +210 and +620, respectively.

Agency CMBS

• Agency issuance totaled $1.8 billion last week, consisting of $1.3 billion in Freddie K and Multi-PC transactions, $357.3 million in Fannie DUS, and $138.3 million in Ginnie PLs.
• For the year, agency issuance stands at $109.9 billion, 27% lower than the $150.3 billion for same-period 2022.

The Economy, the Fed, and Rates…

• A stronger-than-expected jobs report showed employers added 199,000 jobs in November, a jump from the +150,000 in October.
• Average hourly earnings rose 0.4% month-over-month and at an annual rate of 4%. The unemployment rate fell to 3.7% from 3.9%.
• The data knocked down investors’ hopes the Fed will begin cutting rates as soon as spring. On Friday, traders in futures markets scaled back the odds of a quarter-point rate cut in March from officials’ current target range of 5.25% to 5.5%.
• Continued labor market strength bolstered Fed officials’ view that the economy can withstand high interest rates.
• The Fed is looking for signs that its restrictive monetary policies are beginning to reduce wage growth to levels consistent with their goal of keeping inflation at 2%. As noted by Eric Winograd, an economist at AllianceBernstein:

“The Fed needs to see disinflation and weakness in the economic data, particularly in the labor market, to move. Right now, we don’t have that.”

• The jobs report paused the impressive rally in Treasuries, with the yield on the two-year seeing its biggest one-day jump since May, up 13 bps on Friday to 4.72%. The 10-year yield advanced 8 bps on Friday to 4.23% but remains well below the 4.99% it reached in October.
• Policymakers on the Federal Open Market Committee (FOMC) will convene in Washington this week, with an announcement expected on Wednesday afternoon. Rates are forecast to stay on hold.
•  Download CREFC’s one-page MarketWatch with statistics covering the economy and the CRE debt capital markets here.

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Congressional Roundup: Major Retirements 

December 11, 2023

House Financial Services Chairman Patrick McHenry (R-NC) surprised many last week when he announced he would not run for re-election in 2024 and plans to retire at the end of his term. Former Speaker Kevin McCarthy (R-CA) announced he will resign a the end of the year, which had been widely expected after his ouster.

Why it matters: Looking at Congress overall, this is the most rapid pace of retirements in over a decade. McHenry’s retirement opens up a race in Financial Services to succeed him as the top Republican.

By the numbers: 38 members of Congress—seven members of the U.S. Senate and 31 members of the U.S. House—announced they would not seek re-election in 2024. Reasons for the House departures break down as follows:

• 11 (2 Republicans and 9 Democrats) are running for the U.S. Senate.
• 2 (1 Democrat and 1 Republican) are running for state attorney general.
• One Democrat is running for governor.
• One Democrat is running for President of the United States.
• 16 (9 Democrats and seven Republicans) are retiring from public office.

The big picture: While some retirements create opportunities for seats to flip, the key impact in safe seats will be in the primaries. An open primary gives more extreme candidates a smoother path to victory without a well-funded incumbent in the way.

Contact David McCarthy (dmccarthy@crefc.org) and James Montfort (jmontfort@crefc.org) for more information. 

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38 Members of Congress have announced their retirement as of Dec. 8. 

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CREFC and Oxford Analytica Publish Update to CRE ESG Trends Report

December 11, 2023

Having launched its Sustainability Initiative in early 2021, CREFC recognized the need for a robust and unbiased ESG monitoring system that allows our industry partners to track the complex and evolving nature of the U.S. ESG landscape.

CREFC partnered with Oxford Analytica to design a Strategic Issues Monitor (SIM), a benchmark that will allow organizations to identify, assess, and track macro ESG trends with the most impact on the U.S. commercial real estate finance industry and our members over the next three years.

What's next: In June 2023, we presented that baseline report, ESG Trends in the Commercial Real Estate Finance Industry. The report’s goals were to provide an update on new developments and implications for the trends enumerated in the baseline report.

We are pleased to share our first update, ESG Trends in the Commercial Real Estate Finance Industry: Update Report, December 2023, which covers:

• Resiliency and efficiency standards;
• Regulation, policy, and politics;
• Emerging trends including data center resiliency, EV charging, biodiversity, and affordable housing.

Please contact Sairah Burki at sburki@crefc.org with any comments or questions.

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