Capital Markets Update Week of 7/30
July 30, 2024
Private-Label CMBS and CRE CLOs
In one of the busiest weeks of the year, eight transactions totaling $7.4 billion priced:
- PFP 2024-11, a $1.1 billion CRE CLO sponsored by Prime Finance consisting of 37 loans primarily secured by multifamily properties (68%)
- BX 2024-AIRC, a $2.95 billion SASB backed by a floating-rate, five-year loan (at full extension) for Blackstone on 29 apartment complexes in nine states
- BANK5 2024-5YR8, a $690.5 million conduit backed by 32 five-year loans from BofA, Morgan Stanley, Wells Fargo, and JPMorgan
- COMM 2024-277P, a $650 million SASB backed by a fixed-rate, five-year loan for the Stahl Organization to refinance 277 Park Avenue, a 1.9 million-sf office building in Manhattan
- EQT 2024-EXTR, a $638 million SASB backed by a fixed-rate, five-year loan for EQT Exeter on 39 industrial properties in eight states
- KIND 2024-1, a $517 million SASB backed by a floating-rate, five-year loan (at full extension) for KKR to refinance a portfolio of 42 industrial properties and one office property
- NYC 2024-3ELV, a $500 million SASB backed by a floating-rate, five-year loan (at full extension) for Ares Management and Douglaston Development on a newly built apartment tower in Hudson Yards
- DBGS 2024-SBL, a $344.5 million SASB backed by a floating-rate, five-year loan (at full extension) for Goldman Sachs Asset Management and Dalfen Industrial on 19 industrial properties in seven states
According to Commercial Mortgage Alert, six additional transactions are currently in various stages of marketing, including a $1 billion conduit from BMO and 10 other loan contributors.
Year-to-date private-label CMBS and CRE CLO issuance totaled $58.3 billion, more than double the $23.3 billion for the same period last year.
Spreads Mixed
- Conduit AAA and A-S spreads were unchanged at +100 and +140. YTD, AAA and A-S spreads are tighter by 16 bps and 25 bps, respectively.
- Conduit AA and A spreads were wider by 20 bps at +190 and +240. YTD AA and A spreads are tighter by 35 bps and 135 bps, respectively.
- Conduit BBB- spreads were unchanged at +575. YTD, BBB- spreads have tightened by 325 bps.
- SASB AAA spreads were unchanged at +150 to +158, depending on property type. They have narrowed from +160 to +188 at the start of the year.
- CRE CLO AAA spreads were 10 bps wider at +180 / +185 (Static / Managed). BBB spreads were unchanged at +575 / +575 (Static / Managed).
Agency CMBS
- Agency issuance totaled $2.6 billion last week, consisting of $1.1 billion in Fannie DUS, $1.1 billion in Freddie K and Q transactions, and $350.5 million in Ginnie Mae transactions.
- Agency issuance for the year is $57.2 billion, 16% lower than the $68.3 billion for the same period last year.
The Economy, the Fed, and Rates…
Economic Data
- GDP surprises: the economy grew at an annualized rate of 2.8% in Q2 2024, significantly exceeding economists' expectations of 2%. This marks a substantial increase from the 1.4% growth rate in Q1.
- Key GDP drivers included consumer spending, which rose 2.3%, up from 1.5% in Q1, and business investment, particularly in equipment, which saw an 11.6% increase due to delayed Boeing deliveries boosting the figures.
- The Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose by 2.5% year-over-year in June, down from 2.6% in May. Core PCE inflation, which excludes food and energy, remained steady at 2.6%.
- The University of Michigan's consumer sentiment index fell to 66.4 in July, the lowest in eight months, reflecting ongoing concerns about high prices and borrowing costs.
- A recent Bloomberg article highlighted the noticeable shift toward value-seeking behavior amongst consumers, with many trading down to cheaper brands and reducing discretionary spending. This trend is affecting various sectors, from groceries to luxury goods.
Fed Policy
- The new GDP data is not expected to change the Fed's outlook. Officials have signaled that they expect to hold interest rates steady at their July 30-31 meeting but could cut at their subsequent meeting in September if inflation continues to cool.
- Futures markets slightly reduced bets on interest-rate cuts after the strong GDP data, but still expect two to three cuts by year-end. The CME's FedWatch tool shows a near-certainty of a rate cut in September.
Treasury Yields
- Following the PCE inflation data release, Treasury yields declined, reflecting increased expectations for a rate cut in September.
- The 2-year yield ended the week down 13 bps to 4.38%, the lowest since February, and the 10-year yield ended the week down 5 bps to 4.19%. The yield curve remains inverted. Note that with one exception, the inverted yield curve has signaled every recession since 1955.
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.