News

Capital Markets Update Week of 9/24

September 24, 2024

Private-Label CMBS and CRE CLOs

Six transactions totaling $4.1 billion priced last week:

  • BBCMS 2024-5C29, a $1.1 billion conduit backed by 55 five-year loans secured by 102 properties from Barclays and 10 other loan contributors
  • BSPRT 2024-FL11, a $1 billion CRE CLO from Benefit Street Partners consisting of six whole loans and 17 loan participations secured by multifamily (61.4%), hotel (19.9%), and industrial (18.7%) properties across five states. Benefit Street has a six-month ramp-up period to invest $100 million in comparable loans.
  • BMARK 2024-V10, a $738 million conduit backed by 32 five-year loans secured by 62 properties from Goldman and Deutsche.
  • LBA 2024-7IND, a $577.6 million SASB backed by a floating-rate, five-year loan (at full extension) for LBA Logistics Value Fund VII, LP to refinance a portfolio of 30 industrial properties across 10 states.
  • LEX 2024-BBG, a $400 million SASB backed by a fixed-rate, four-year loan for Alexander’s to refinance Bloomberg’s global headquarters at 731 Lexington Avenue.
  • JPMCC 2024-OMNI, a $307 million SASB backed by a fixed-rate, three-year loan for an Omni Hotels & Resorts joint venture to refinance the 1,054-room Omni Boston Hotel.

According to Commercial Mortgage Alert, four transactions totaling ~$3 billion are currently in various stages of marketing.

By the numbers:

YTD CMBS/CRE CLO Issuance Doubles

  • Year-to-date private-label CMBS and CRE CLO issuance totaled $75.1 billion, more than double the $29.7 billion for same-period 2023.

Conduit and SASB Spreads Narrow

  • Conduit AAA and A-S spread were tighter by 8 bps and 5 bps to +91 and +140, respectively. YTD, AAA and A-S spreads are both tighter by 25 bps.
  • Conduit AA and A spreads last week were tighter by 5 bps to +185 and +235. YTD AA and A spreads are tighter by 40 and 140 bps, respectively.
  • Conduit BBB- spreads narrowed 10 bps to +500. YTD, BBB- spreads have tightened 360 bps.
  • SASB AAA spreads tightened by 6 to 16 bps to +125 to +155, respectively, depending on property type. YTD, spreads have narrowed from +143 to +212 .
  • CRE CLO AAA spreads were tighter by 5 bps to +170 / +170 (Static / Managed). BBB- spreads were tighter by 75 bps to +500 / +500 (Static / Managed).

Agency CMBS

  • Agency issuance totaled $2.2 billion last week, consisting of $1.8 billion in Fannie DUS and $382.7 million in Ginnie Mae Project Loan transactions.
  • Agency issuance year-to-date totals $71.9 billion, 18% lower than the $87.3 billion for same-period 2023.

The Economy, the Fed, and Rates…

Fed Policy

  • Fed Implements First Rate Cut in Over Four Years: On Sept. 18, the Federal Reserve lowered its benchmark interest rate by 50 bps to a range of 4.75% to 5.00%. The rate cut reflects the Fed's growing confidence that recalibrating monetary policy can maintain labor market strength amid moderate growth and declining inflation.
  • However, Fed Chair Powell cautioned against assuming the half-point cut sets a new pace for future policy moves, emphasizing that decisions will be data-dependent:

"I do not think that anyone should look at this and say, ‘Oh, this is the new pace.’"

  • Dissent within the Fed: The rate cut decision was not unanimous; Governor Michelle Bowman dissented, favoring a smaller, quarter-point cut. This marks the first dissent by a governor since 2005. Bowman noted:

"[A larger cut] could be interpreted as a premature declaration of victory on our price stability mandate."

Contact 

Raj Aidasani
Managing Director, Research
646.884.7566
N/A
  • Projections from the FOMC indicate that 10 of 19 officials favor lowering rates by at least an additional half-point over the two remaining meetings in 2024. Seven policymakers support another quarter-point reduction, while two oppose further cuts. Futures markets are betting on an additional 75 basis points of cuts by year-end.

Economic Data

  • Job Market: Initial jobless claims fell 12,000 to 219,000 for the week ended Sept. 14, marking the lowest since May. This indicates continued labor market strength despite a slowdown in hiring. Continuing claims also dropped, suggesting fewer people are receiving unemployment benefits.
  • A surge in immigration has expanded the labor force, making it challenging to estimate the break-even level of job growth. Estimates now suggest the economy needs to add approximately 230,000 jobs per month to keep the unemployment rate steady.
  • Upcoming Data: When released on Sept. 27, the August personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, is expected to show inflation moving closer to the Fed's 2% target. This is viewed as corroboration for the Fed’s aggressive rate cut.
  • Other upcoming data on personal spending, income, and new home sales, alongside the GDP revisions, will further clarify the path for the economy and influence the Fed's next steps.

Treasury Yields

  • Yields on longer-term Treasuries moved higher last week despite the Fed’s rate cut. The yield on the benchmark 10-year Treasury rose 9 bps on the week to 3.74%, while the 2-year yield rose 1 bp to 3.59%.
  • The yield increases remind us that the Fed doesn't have complete control over borrowing costs. The central bank manages the short-term rates that banks charge each other for overnight loans, which shift costs on credit card debt and other types of floating-rate loans.
  • However, rates on a large percentage of debt are driven by swings in Treasury yields. Those are set by where investors believe the Fed's short-term rates will go in the future rather than where they are now. The 10-year yield is still ~100 bps lower than it was earlier this year (while the 2-year yield is 145 bps lower) when rate cuts seemed more uncertain. But there is no guarantee that they will fall any further if the economy remains stable, potentially frustrating borrowers hoping for more significant declines.
  • The recent “uninversion” of the yield curve, with longer-term yields rising above short-term yields, has sparked discussions about its reliability as a recession predictor. Historically, such movements have preceded economic downturns.

Please download CREFC’s one-page MarketMetrics covering statistics on the economy and the CRE debt capital markets here.

Contact Raj Aidasani (raidasani@crefc.org) with any questions.
 
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2024 CRE Finance Council. All rights reserved.

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