Capital Markets Update Week of 4/21
April 23, 2024
Private-Label CMBS and CRE CLOs
In a busy week, four private-label transactions priced, including the first CRE CLO since February:
- BANK5 2024-5YR6, a $984.3 million conduit backed by 46 five-year loans secured by 54 properties. Retail (49.7%) comprises the largest property concentration, followed by hotel (16.7%) and multifamily (13.8%).
- SDR 2024-DSNY, $735 million SASB backed by two cross-collateralized, five-year loans (at full extension) for Tishman Hotel & Realty and MetLife on the leasehold interest in the 2,619-room Walt Disney World Swan & Dolphin Resort complex
- AREIT 2024-CRE9, a $678.4 million static CRE CLO backed by five whole loans and 10 loan participations on 22 properties in 11 states. Multifamily (51.1%) comprises the largest property type concentration, followed by industrial (24%) and mixed-use (13.4%).
- DATA 2024-CTR2, a $185 million SASB backed by a 10-year fixed-rate loan for Digital Realty Trust’s recapitalization of a 328,000 sf data center outside Chicago
According to Commercial Mortgage Alert, a $862.9 million five-year conduit offering is in the market and expected to be priced this week, along with a $1.3 billion SASB transaction. Year-to-date private-label CMBS and CRE CLO issuance totals $23.6 billion, well ahead of the $8.9 billion for the same-period 2023.
Spreads Mixed
- Conduit AAA and A-S spreads were wider by 5 and 10 bps to +97 and +140, respectively. YTD, AAA and A-S spreads are tighter by 19 bps and 25 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 wider by 8 bps, ranging from +145 to +162, depending on property type. They have 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 - By the Numbers
Agency issuance totaled $1.8 billion last week, consisting of:
- $826.6 million in Fannie DUS,
- $716.9 million in Freddie-K and Multi-PC transactions, and
- $238.8 million in Ginnie transactions.
Agency issuance for the year is $29.1 billion, 13% lower than the $33.5 billion for the same period last year.
The Economy, the Fed, and Rates…
Economic Data
- Initial jobless claims held steady at 212,000 for the week ending April 13, indicating ongoing labor market strength despite high interest rates, reinforcing the Fed’s cautious approach to rate cuts.
- Continuing claims, a proxy for the number of people receiving unemployment benefits, were also little changed at 1.81 million in the week ended April 6.
Fed Policy
- Fed Chair Jay Powell and other officials signaled a potential prolonging of high interest rates due to recent disappointing inflation data. Powell cemented that message last week when he said it would likely take “longer than expected” to gain the confidence needed to lower rates, dashing hopes for more than two cuts in 2024.
- The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, is projected to remain elevated in March, according to data due this week. The measure is seen accelerating slightly to 2.6% on an annual basis as energy costs rise.
- Other data for the week include the government’s initial estimate of first-quarter GDP, which probably cooled from the prior period’s robust pace but still exceeded what policymakers deem sustainable in the long run.
Market Sentiment
- A Bloomberg article last week highlighted a radical theory spreading on Wall Street to explain the economy’s continued strength despite higher interest rates. What if all the interest rate hikes over the last two years are actually boosting the economy?
- The theory suggests that increased income from savings and bonds due to higher rates could be boosting consumer spending and corporate profitability, countering the traditional view that rate hikes slow economic expansion.
Treasury Yields
- Treasury yields have climbed in recent weeks amid the disappointing inflation data. The 10-year yield reached its highest level of the year last week at 4.67%, following Powell’s comments conveying a lack of urgency to adjust rates. The 10-year T-note yield ended the week at 4.62%, up 10 bps from the prior week, while the 2-year yield ended the week at 4.99%, up 9 bps from the preceding week. The curve clearly remains inverted.
- According to an article by ING Bank NV, a revival in the so-called term premium in Treasuries would pave the way for the benchmark 10-year yield to return to the key 5% level. The term premium is typically described as the extra yield investors demand to own longer-term debt instead of rolling over shorter-term securities as they mature. “Currently there is virtually none,” noted the article.
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.