Capital Markets Update Week of 12/10
December 10, 2024
Private-Label CMBS and CRE CLOs
Five transactions totaling $4.8 billion priced last week:
- BX 2024-GPA3, a $1 billion SASB backed by a floating-rate, five-year loan (at full extension) to American Campus Communities, a portfolio company of Blackstone, to refinance a portfolio of 32 student-housing properties
- TCO 2024-DPM, a $1 billion SASB backed by a floating-rate, five-year loan (at full extension) to Taubman Realty to refinance the Dolphin Mall in Sweetwater, FL
- BMO 2024-5C8, a $991.8 billion conduit backed by 40 five-year loans secured by 98 properties from BMO and nine other loan contributors
- FMBT 2024-FBLU, a $975 million SASB backed by a floating-rate, five-year loan (at full extension) to Jeffrey Soffer’s Fontainebleau Development to refinance the Fontainebleau Miami Beach hotel
- BBCMS 2024-5C31, an $872.5 million conduit backed by 39 five-year loans secured by 55 properties from Barclays, Starwood, and nine other loan contributors
By the numbers: Year-to-date private-label CMBS and CRE CLO issuance totals $110.1 billion, 145% ahead of the $44.9 billion for same-period 2023.
Spreads Narrow
- Conduit AAA spreads tightened by 8 bps to +77, and A-S spreads by 5 bps to +110. YTD, AAA and A-S spreads are tighter by 39 bps and 55 bps, respectively.
- Conduit AA and A spreads were unchanged at +145 and +175, respectively. YTD, AA and A spreads are tighter by 80 bps and 200 bps, respectively.
- Conduit BBB- spreads were unchanged at +450. YTD, BBB- spreads have tightened by 450 bps.
- SASB AAA spreads were tighter by 5 – 8 bps to a range of +100 to +122, depending on property type. YTD, spreads narrowed from a range of +143 to +212.
- CRE CLO AAA spreads were tighter by 15 bps to +145 / +150 (Static / Managed), and BBB- spreads were tighter by 50 bps to +400 / +425 (Static / Managed). YTD, they have narrowed from +200 (Static / Managed) and +600 (Static / Managed), respectively.
Agency CMBS
- Agency issuance totaled $6.9 billion last week, consisting of $5.6 billion in Freddie K, Multi-PC, and Q transactions, $1.3 billion in Fannie DUS, and $73 million in Ginnie Mae transactions.
- Agency issuance for the year totaled $112.2 billion, just 1% lower than the $112.8 billion for same-period 2023.
The Economy, the Fed, and Rates…
Economic Data
- Strong Job Growth: The economy added 227,000 jobs in November, rebounding from October's hurricane and strike-affected gain of 36,000 (revised up from 12,000). This exceeded consensus forecasts of 200,000 but came with mixed signals - the unemployment rate edged higher to 4.2%, and the job-finding rate fell to 21.3%, the lowest since the pandemic began.
- ISM Surveys: The ISM Manufacturing PMI rose to 48.4, signaling slower contraction, but continued challenges from high interest rates and policy uncertainty remain. ISM Services PMI fell sharply to 52.1, marking a three-month low and hinting at weakening demand.
- Consumer Sentiment: The University of Michigan's Consumer Sentiment Index rose to 74 in December, the highest since April. However, inflation expectations picked up to a five-month high of 2.9% for the year ahead, with Democrats particularly concerned about potential tariff impacts on prices. This uptick in inflation expectations could influence Fed policy decisions.
Fed Policy & Outlook
- Officials' Stances: Recent Fed commentary suggests increasing caution. Chair Jerome Powell indicated the Fed can "afford to be a little more cautious" given economic strength. Cleveland Fed's Beth Hammack said the Fed is "at or near" the point of slowing rate cuts. Chicago Fed's Austan Goolsbee characterized the labor market as "largely stable" despite data volatility.
- Rate Cut Expectations: Following the jobs report, traders increased their bets on an interest rate cut in December. The market-implied odds of a quarter-point rate cut on December 18 rose to about 90%. However, the upcoming CPI report (December 11) is critical to solidifying the Fed's rate decision.
- Structural Shifts: Some market participants, including BlackRock, argue traditional business cycle analysis may be less relevant given transformative forces like AI, though others warn against dismissing cyclical risks.
Market Reaction & Treasury Yields
- Equity Markets: The S&P 500 continued hitting new records, benefiting from the "Goldilocks" interpretation of the jobs data - showing enough weakness to keep Fed cuts on track while maintaining fundamental economic stability.
- Crypto: Bitcoin surged above $100,000 for the first time last week, a milestone hailed even by skeptics as a coming-of-age for digital assets. Investors are betting on a friendly incoming administration to cement cryptocurrencies' place in financial markets.
- Treasury Yields: Treasuries rallied on Friday following the mixed November employment report. The yield on two-year notes fell 4 bps to 4.10%, reflecting increased confidence in near-term Fed easing. The 10-year yield fell 3 bps to 4.15%.
Go deeper: 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.