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CREFC Capital Markets Update: Week of 9/19

September 19, 2022

• Private-Label CMBS and CRE CLOs. No private-label transactions priced last week as the market digested the higher-than-expected CPI reading for August. As of September 16, private-label CMBS and CRE CLO issuance stood at $86.6 billion, down 7% from the $92.9 billion for the same period in 2021.
• Following a solid first-quarter 2022, CMBS and CRE CLO issuance slowed significantly, narrowing – and eventually eliminating – the year-over-year positive issuance margin. At the end of Q1 2022, total issuance was 70% ahead of the same period in 2021.
• According to BofA Global Research, 16 private-label transactions are in the pipeline and expected to price through the end of November. However, given the recent increase in yields and continued economic uncertainty, it is likely that not all of these transactions will close as planned.
• The 10-year Treasury yield ended the week at 3.45%, up 14 bps for the week and 20 bps for the month. CME 1M Term SOFR ended the week at 3.02%, up 25 bps for the week and 43 bps for the month. SOFR is expected to climb further as the Fed continues to increase rates.
• Rising rates have complicated borrowers’ ability to refinance and have dampened acquisition activity as higher rates reduce the amount buyers would be willing to pay given the lower loan proceeds lenders are willing to advance.
• Spreads on 10-year conduit CMBS super-senior AAA bonds ended the week 2 bps higher at +129; AA – A spreads were unchanged at +200 – 280, respectively, as were BBB- spreads at +575 bps.
• Spreads on AAA SASB tightened 2 – 10 bps last week to +148 – +185 bps, while senior AAA CRE CLO spreads tightened 5 bps to +180 bps. SASB and CRE CLO have benefitted from increasing investor demand amidst higher short-term rates, with 1M SOFR now at 3.02% –compared to 0.5% – 0.10% at the start of the year.
• Agency CMBS. Issuance last week totaled $2.6 billion, consisting primarily of Fannie DUS transactions. Total agency issuance reached $114.0 billion for the year-to-date period ended September 16, down 10% from last year's $126.5 billion.
• The GSEs may end the year falling short of their $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.

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