Capital Markets Update Week of 4/8
April 9, 2024
Private-Label CMBS and CRE CLOs
- Two private-label transactions totaling $1.1 billion priced last week:
- HTL 2024-T53, a $631.5 million SASB backed by a three-year, fixed-rate loan for MCR Hotels and Building and Land Technology (BLT) to refinance 53 hotels totaling 5,958 rooms across 14 states
- BX 2024-BRVE, a $428.5 million SASB backed by a floating-rate, five-year loan (at full extension) for Blackstone Real Estate Income to refinance 23 hotels totaling 4,002 rooms across 10 states
- According to Commercial Mortgage Alert, three additional SASB transactions are in the market and are expected to price this week.
- Year-to-date private-label CMBS and CRE CLO issuance totaled $20.5 billion, well ahead of the $7.8 billion for the same period last year.
Spreads Steady
- Conduit AAA and A-S spreads were unchanged at +88 and +130, respectively. YTD, 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. 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 +136 to +160, 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 $2 billion last week, consisting of $1.4 billion in Freddie-K and Multi-PC transactions, $475.8 million in Fannie DUS, and $83.1 million in Ginnie transactions.
- Agency issuance for the year is $25.8 billion, 4% lower than the $26.8 billion for the same period last year.
The Economy, the Fed, and Rates…
Economic Data:
- The economy added 303,000 jobs in March, blowing past economists' forecasts of ~200,000. The unemployment rate edged down to 3.8%, as a separate survey showed 469,000 new entrants into the labor force. The labor participation rate climbed and, at 62.7%, is now above where it was a year ago.
- Notable job gains were observed in healthcare, leisure and hospitality, construction, and government. Average weekly earnings and the number of hours worked both showed positive trends, underlining the upward pressure on wages amid a competitive job market.
- Steadier goods spending and lower cost inflation seem to have relieved pressure on manufacturing. Last week’s ISM purchasing managers’ index confirmed that manufacturing returned to modest expansion in March after 16 months of contraction.
- In cycles since 1951, ISM manufacturing surveys have never shrunk for more than 14 months without a recession. Manufacturing leaving contraction removes one of the economy’s last few soft spots.
Fed Policy:
- The March jobs report underscored the robustness of the labor market, challenging the immediate necessity for Fed rate cuts and leading to a reassessment of the economic outlook among investors and policymakers.
- According to futures markets, market anticipation of Fed rate cuts shifted significantly, with the probability of a rate reduction by June dropping from 66% to about 50%.
- Federal Reserve officials, including Chair Jay Powell and Dallas Fed President Lorie Logan, signaled a cautious stance toward cutting interest rates amidst a robust labor market and inflationary pressures. They emphasized the need for more evident signs of inflation moving toward the Fed's 2% target.
- Analysts and economists will closely monitor upcoming economic data, especially CPI figures, to gauge the Fed's policy direction. A consensus is leaning towards eventual rate reductions but diverging on the timing and magnitude.
Treasury Yields:
- Bond yields rose after the release of the strong jobs data as investors scaled back bets that the Fed would cut interest rates soon. The two-year Treasury yield was up 13 bps on the week to 4.75%, while the 10-year was up 20 bps to 4.40%, its highest level since November.
You can download CREFC’s one-page MarketWatch with statistics covering the economy and the CRE debt capital markets here.
Contact Raj Aidasani (raidasani@crefc.org) with any questions.