News

CREFC Capital Markets Update Week of 11/21

November 21, 2022. 

Subdued Issuance Week as We Head Into Thanksgiving

• Private-Label CMBS and CRE CLOs. No private-label CMBS and CRE CLO transactions priced last week; however, two conduit deals were in the market hoping to price before the Thanksgiving break. As of November 18, private-label CMBS and CRE CLO issuance stood at $96.6 billion, down 33% from the $143.8 billion for the same period in 2021. At the end of Q1 2022, total issuance was 70% ahead of the same period in 2021. 
• The pipeline of transactions going into the end of the year is light, with ~$7 billion of private-label deals expected, comprised of five conduit ($3.6 billion), one SASB ($750 million), and four CRE CLOs ($2.6 billion). Assuming nothing is added or removed from the pipeline, full-year 2022 private-label CMBS and CRE CLO issuance will total ~$103 billion, or roughly 36% below last year’s full-year private-label issuance.
• Benchmark rates widened last week, with the 10-year Treasury yield up 2 bps to 3.83% and CME 1M Term SOFR up 14 bps to 3.93%. The 10-year Treasury is 224 basis points higher on a year-over-year basis, while CME 1M Term SOFR is 388 basis points higher. Elevated rates have resulted in financing costs that have become prohibitive for some borrowers. Combined with continued market volatility, deal collateral has become harder to aggregate for issuers.
• Spreads on 10-year conduit bonds tightened across the capital stack, with super-senior AAA ending the week lower by 7 bps at 155, AA- and A- down 10 bps and 25 bps to 275 and 450, respectively, and BBB- lower by 25 bps to 750.  
• Spreads on AAA SASB tightened for hotel and industrial transactions by 5 bps and 10 bps to 260 and 205, respectively, while widening by 15 for office transactions to 285. Senior AAA CRE CLO spreads were unchanged at 260.
• Agency CMBS. Issuance last week totaled $2.1 billion, consisting of two Freddie K transactions: a $1.29 billion fixed-rate offering and an $812 floating-rate offering. Total agency issuance reached $138.0 billion for the year-to-date period ended November 18, down 19% from last year's point ($169.8 billion).

• The GSEs will likely end the year falling short of their individual $78 billion lending cap. In addition to higher rates and reduced acquisition activity, the agencies have faced stiff competition from banks, debt funds, and life companies over the past year.

Contact 

Subdued Issuance Week as We Head Into Thanksgiving.

News Archive

News

CMBS Delinquency and Special Servicing Rates Inch Upward

November 21, 2022. 

• Following three consecutive monthly declines, the CMBS delinquency rate increased 4 bps in October to 2.96%.  
• Despite falling for 25 of the last 28 months, we anticipate the delinquency rate will be more volatile given the challenging macro environment. This reflects both heightened market volatility and a growingly unfavorable landscape for lenders in refinancing loans at higher rates and likely lower asset valuations as cap rates rise and the real potential that property-level cash flows decline.
• Loans in special servicing rose slightly in October, up 3 bps to 4.97%. While small, it marks the third consecutive increase (which followed 22 successive monthly declines). While the special servicing rate remains well below its high of 10.48% in September 2020 at the height of the pandemic, higher benchmark rates and the real risk of an economic slowdown suggest asset valuations may be on the decline, challenging loan performance.

• This is the first time since June 2020 that the CMBS delinquency and special servicing rates rose in tandem.

Contact 

Following three consecutive monthly declines, the CMBS delinquency rate increased 4 bps in October to 2.96%.  

News Archive

News

CREFC LIBOR Playbook

November 21, 2022. 

CREFC has been working diligently with its members to address the implications and operational issues related to transitioning individual floating rate loans from a LIBOR index to the recommended SOFR index.

Why it matters: LIBOR will cease to be published beyond June 30, 2023.  In light of that impending deadline, many market participants will be impacted by LIBOR cessation and the transition to SOFR, including but not limited to master servicers, primary servicers, special servicers, trustees, certificate administrators, rating agencies, investors and borrowers. 

• The CREFC community through the Servicers Forum compiled guidance via a “LIBOR Playbook” tailored to our servicers’ role in the transitioning of floating rate loans from a LIBOR index to a SOFR index.

These general guidelines seek to address a three-step process which provides guidance on:

1. Identifying all LIBOR benchmarked loans in servicing platforms,
2. Remediating any loans with deficient replacement language, and
3. Providing consistent and timely notices to borrowers and transaction parties.

What’s Next: CREFC expects to finalize and distribute the playbook in the coming weeks. A webinar is also planned to introduce the playbook and delve into the nuances of legacy LIBOR loans.

Contact Kathleen Olin (kolin@crefc.org) for more information.

Contact 

CREFC has been working diligently with its members to address the implications and operational issues related to transitioning individual floating rate loans from a LIBOR index to the recommended SOFR index.

News Archive