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Capital Markets Update Week of 12/4

December 4, 2023

Private-Label CMBS and CRE CLOs

• In a busy week for the market, three transactions priced:

- BANK 2023-5YR4, a $744.1 million conduit backed by 5-year loans and a mix of property types, led by retail (41.8%), hotel (25%), and office (12.3%)

- BMO 2023-C7, a $739.3 million conduit backed by 10-year loans and a mix of property types, led by retail (39.8%), multifamily (19.3%), and industrial (13.3%)

- TYSN 2023-CRNR, a $440.2 million SASB backed by a portion of a 5-year, fixed-rate loan secured by Tysons Corner Center, a 1.8 million-sf super-regional mall in McLean, VA.

• This week is also expected to be active with a $915 million conduit in the market and several SASB offerings, including a roughly $1 billion transaction to Blackstone on a portfolio of industrial properties and a $736 million transaction backed by a portfolio of hotels.
• Year-to-date, private-label CMBS and CRE CLO issuance stood at $41.8 billion, 58% behind the $99.7 billion for the same period last year.

CMBS Spreads Tighten

• Conduit AAA and A-S spreads came in 3 bps to +132 and +177, respectively, while A and BBB- spreads were unchanged at +400 and +915, respectively.
• AAA SASB spreads were unchanged, in a range of +160 - +190, depending on property type.
• AAA and BBB- CRE CLO spreads were tighter by 5 bps to +210 and +620, respectively.

Agency CMBS

• Agency issuance totaled $1.7 billion last week, consisting primarily of two Freddie K transactions totaling $1.4 billion. For the year, agency issuance stands at $105.2 billion, 29% lower than the $148.3 billion for the same period last year.

The Economy, the Fed, and Rates…

• In a speech on Friday, Fed Chair Powell pushed back on speculation that the fight against inflation has been won and that it was too soon to rule out further rate increases or to start discussing cuts. He noted:

“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease.”

• Despite Powell’s pushback, traders weren’t buying it as they increased bets that not only was the Fed done hiking but that it would soon be cutting rates. Traders in the fed funds futures markets now see about a two-thirds chance of the Fed reducing rates as early as March 2024, up from about 20% just a week prior.
• However, experts warn that for cuts to be considered, the Fed will need to see several inflation reports to bolster the case. Powell emphasized this on Friday, saying the Fed would be closely monitoring economic data:

“Let the data reveal the appropriate path… While the lower inflation readings of the past few months are welcome, that progress must continue if we are to reach our 2% objective.”

• Treasury yields continued to fall sharply as the market repriced expectations for the Fed’s policy path, with the 2-year ending last week lower by 41 bps to 4.54% and the 10-year lower by 27 bps to 4.20%.

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