Capital Markets Update Week of 4/15
April 16, 2024
Private-Label CMBS and CRE CLOs
- Two private-label transactions totaling $510.3 million priced last week:
- SDAL 2024-DAL, a $270 million SASB backed by a floating-rate, five-year loan (at full extension) for Elliot Management and Chartres Lodging Group to refinance the Sheraton Dallas Hotel.
- DBWF2024-LCRS, a $240.3 million SASB backed by a floating-rate, five-year loan (at full extension) for Ohana Real Estate and DivcoWest to refinance the La Cantera Resort & Spa in San Antonio.
- According to Commercial Mortgage Alert, over $11 billion of conduit and SASB offerings are in the works through June of this year, including ~$4 billion this month.
- Year-to-date private-label CMBS and CRE CLO issuance totaled $21 billion, well ahead of the $8.9 billion for the same period last year.
Spreads Largely Unchanged
- Conduit AAA and A-S spreads were mixed with AAA spreads wider by 4 bps to +92, and A-S spreads were unchanged at +130. YTD, AAA and A-S spreads have tightened by 24 bps and 35 bps, respectively.
- Conduit AA and A spreads were unchanged at +150 and +250, respectively. YTD, 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 +137 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 $1.4 billion last week, consisting of $757.1 million in Freddie-K and Multi-PC transactions, $628.6 million in Fannie DUS, and $37.4 million in Ginnie transactions.
- Agency issuance for the year is $27.3 billion, 8% lower than the $29.7 billion for the same period last year.
The Economy, the Fed, and Rates…
Economic Data
- Inflation has been more stubborn than anticipated, with the latest CPI data showing a year-over-year increase of 3.5% for March, exceeding expectations. This follows a trend where inflation has continually surpassed forecasts, raising concerns about the persistence of inflationary pressures.
- Core CPI, excluding food and energy prices, also remained elevated at 3.8%, indicating broad-based price increases across the economy. Core services inflation rose at an annualized rate of 6% in March, driven by increases in shelter, medical care, and auto services costs.
- Recent increases in oil prices – Brent crude recently surpassed $92 a barrel –and metal prices have further fueled inflationary pressures.
Fed Policy
- Fed officials, including those from Atlanta, Boston, and San Francisco, have emphasized a cautious approach to adjusting interest rates, citing the need for clear and convincing evidence of inflation moving towards the 2% target before any rate cuts are considered.
- Various Fed officials have expressed concerns about cutting rates too soon, with some suggesting that the next move could potentially be a rate hike if inflationary pressures re-emerged. This underscores a shift from earlier more dovish signals to a “higher for longer” stance.
Market Reaction
- After inflation last week beat forecasts for the third month in a row, traders and fund managers were forced to reassess their assumptions. Current market sentiment now forecasts fewer rate cuts, with some projections suggesting only one or two quarter-point reductions by the end of the year.
- That compares with the six or more cuts expected back in January and the three that the more conservative Federal Reserve had projected.
- In an article for Bloomberg, Pimco warned that the Federal Reserve could pivot back toward interest rate hikes if inflation moves higher, with the asset manager preferring to buy bonds in other markets.
Treasury Yields
- Treasury yields rose across the maturity curve, reflecting investors’ lower expectations for interest rate cuts.
- The 2-year Treasury yield rose 15 bps for the week to 4.90%, while the 10-year yield rose 12 bps for the week to 4.52%. At one point during the week, the 10-year yield reached 4.59%, a five-month high.
You can download CREFC’s one-page MarketMetrics with statistics covering the economy and the CRE debt capital markets here.
Contact Raj Aidasani (raidasani@crefc.org) with any questions.