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.