Capital Markets Update Week of 3/26
March 26, 2024
Private-Label CMBS and CRE CLOs
- Activity was slower last week, with only one transaction pricing:
- SCG 2024-MSP, a $220.2 million SASB backed by a floating-rate, five-year loan (at full extension) for Starwood Capital to refinance four full-service Marriott hotels totaling 1,016 rooms in three states.
- Despite the lower volume last week, Commercial Mortgage Alert reports that at least a half-dozen SASB offerings are expected to hit the market in the coming weeks.
- Year-to-date private-label CMBS and CRE CLO issuance totaled $18.9 billion, more than three times the $6.1 billion for the same period last year.
Spreads Steady
- Conduit AAA and A-S spreads were unchanged at +88 and +130, respectively. Year to date, AAA and A-S spreads have tightened 28 bps and 35 bps, respectively.
- Conduit AA and A spreads were unchanged at +150 and +250, respectively. Year to date, they have tightened by 75 bps and 125 bps, respectively.
- Conduit BBB- remained at +675. YTD, BBB- spreads have tightened by 225 bps.
- SASB AAA spreads were also unchanged, ranging from +140 to +162, depending on property type. They narrowed from +160 to +188 at the start of the year.
- CRE CLO AAA spreads held at +160 / 165 (Static / Managed), and BBB- spreads at +650 (Static / Managed). For the year, spreads are tighter by 40 / 35 bps and 50 bps, respectively.
Agency CMBS
- Agency issuance totaled $1.9 billion last week, consisting of $1 billion in Freddie-K and Multi-PC transactions, $590.7 million in Fannie DUS, and $354.9 million in Ginnie transactions.
- Agency issuance for the year is $23.4 billion, 2% lower than the $23.9 billion for the same period last year.
The Economy, the Fed, and Rates…
Economic Data: Labor Market Resilience
- Applications for unemployment benefits slightly decreased, signaling a resilient labor market. According to Labor Department data released on Thursday, initial claims decreased by 2,000 to 210,000 in the week ended March 16. The median forecast in a Bloomberg survey of economists called for 213,000.
- The labor market has not shown signs of cooling despite elevated interest rates. Initial and continuing claims remain near historically low levels.
Fed Policy
- Raphael Bostic, President of the Federal Reserve Bank of Atlanta, now expects only one interest-rate cut this year, revising his previous projection of two cuts. He emphasizes the decision hinges on incoming data and mentions concerns over inflation's trajectory.
- The FOMC unanimously voted to maintain interest rates, signaling confidence in achieving its 2% inflation target with a potential rate reduction later in the year. The median projection suggests a federal funds rate reaching 4.6% by year-end, with a split among officials on the pace of future rate cuts.
- The central bank revised its economic growth forecast upwards to 2.1% for the year but also expects slightly higher inflation than previously anticipated. Fed Chair Powell indicated that persistent inflation may complicate the path to a soft landing.
- In an article for Financial Times, Torsten Slok, Chief Economist at Apollo Global and one of Wall Street’s most closely followed prognosticators, argues against expecting rate cuts this year. He cites the effects of previous Fed rate hikes and their distributional impact on consumers and firms. He suggests that easy financial conditions, spurred by anticipation of rate cuts and AI excitement, may keep rates higher for longer.
Treasury Yields
- Long-dated Treasury yields fell to weekly lows, reflecting expectations of rate cuts amid slowing inflation. The 10-year yield was down 11 bps on the week to 4.20%.
- Shorter-maturity yields declined, influenced by upcoming auctions and supportive international bond markets. The 2-year yield was down 14 bps to 4.59% for the week.
- Mohamed El-Erian, President of Queens’ College, Cambridge, and a Bloomberg Opinion columnist, told Bloomberg Television on Friday that he considers a 10-year Treasury yield of around 4.25% reasonable for 2024. He anticipates a shift towards a steeper yield curve as markets adjust to higher inflation tolerances.
You can download CREFC’s one-page MarketWatch with statistics covering the economy and the CRE debt capital markets here.
You can also download CREFC’s 4Q 2023 Compendium of Commercial and Multifamily Real Estate Finance Statistics here.
Contact Raj Aidasani (raidasani@crefc.org) with any questions.