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Capital Markets Update Week of 12/11

December 11, 2023

Private-Label CMBS and CRE CLOs

• In another active week for the market, two transactions priced:

- BX 2023-XL3, a $1 billion SASB backed by a floating-rate loan secured by 109 industrial properties across nine states

- KSL 2023-H5, a $736 million SASB backed by a floating-rate loan secured by 19 hotels totaling 3,102 rooms in six states and Washington, D.C.

• Four transactions are currently in the market, totaling ~$2 billion and comprising two conduits and two SASBs.
• Year-to-date, private-label CMBS and CRE CLO issuance stands at $43.6 billion, 57% behind the $100.4 billion for same-period 2022.

CMBS Spreads Tighten

• Conduit AAA and A-S spreads came in 2 bps to +130 and +175, respectively, while AA and A spreads tightened 10 bps to +240 and +390, respectively; BBB- spreads were tighter by 15 bps to +900.
• AAA SASB spreads were tighter by 3 bps, ranging from +160 to +187, depending on property type.
• AAA and BBB- CRE CLO spreads were unchanged at +210 and +620, respectively.

Agency CMBS

• Agency issuance totaled $1.8 billion last week, consisting of $1.3 billion in Freddie K and Multi-PC transactions, $357.3 million in Fannie DUS, and $138.3 million in Ginnie PLs.
• For the year, agency issuance stands at $109.9 billion, 27% lower than the $150.3 billion for same-period 2022.

The Economy, the Fed, and Rates…

• A stronger-than-expected jobs report showed employers added 199,000 jobs in November, a jump from the +150,000 in October.
• Average hourly earnings rose 0.4% month-over-month and at an annual rate of 4%. The unemployment rate fell to 3.7% from 3.9%.
• The data knocked down investors’ hopes the Fed will begin cutting rates as soon as spring. On Friday, traders in futures markets scaled back the odds of a quarter-point rate cut in March from officials’ current target range of 5.25% to 5.5%.
• Continued labor market strength bolstered Fed officials’ view that the economy can withstand high interest rates.
• The Fed is looking for signs that its restrictive monetary policies are beginning to reduce wage growth to levels consistent with their goal of keeping inflation at 2%. As noted by Eric Winograd, an economist at AllianceBernstein:

“The Fed needs to see disinflation and weakness in the economic data, particularly in the labor market, to move. Right now, we don’t have that.”

• The jobs report paused the impressive rally in Treasuries, with the yield on the two-year seeing its biggest one-day jump since May, up 13 bps on Friday to 4.72%. The 10-year yield advanced 8 bps on Friday to 4.23% but remains well below the 4.99% it reached in October.
• Policymakers on the Federal Open Market Committee (FOMC) will convene in Washington this week, with an announcement expected on Wednesday afternoon. Rates are forecast to stay on hold.
•  Download CREFC’s one-page MarketWatch with statistics covering the economy and the CRE debt capital markets here.

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Congressional Roundup: Major Retirements 

December 11, 2023

House Financial Services Chairman Patrick McHenry (R-NC) surprised many last week when he announced he would not run for re-election in 2024 and plans to retire at the end of his term. Former Speaker Kevin McCarthy (R-CA) announced he will resign a the end of the year, which had been widely expected after his ouster.

Why it matters: Looking at Congress overall, this is the most rapid pace of retirements in over a decade. McHenry’s retirement opens up a race in Financial Services to succeed him as the top Republican.

By the numbers: 38 members of Congress—seven members of the U.S. Senate and 31 members of the U.S. House—announced they would not seek re-election in 2024. Reasons for the House departures break down as follows:

• 11 (2 Republicans and 9 Democrats) are running for the U.S. Senate.
• 2 (1 Democrat and 1 Republican) are running for state attorney general.
• One Democrat is running for governor.
• One Democrat is running for President of the United States.
• 16 (9 Democrats and seven Republicans) are retiring from public office.

The big picture: While some retirements create opportunities for seats to flip, the key impact in safe seats will be in the primaries. An open primary gives more extreme candidates a smoother path to victory without a well-funded incumbent in the way.

Contact David McCarthy (dmccarthy@crefc.org) and James Montfort (jmontfort@crefc.org) for more information. 

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38 Members of Congress have announced their retirement as of Dec. 8. 

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CREFC and Oxford Analytica Publish Update to CRE ESG Trends Report

December 11, 2023

Having launched its Sustainability Initiative in early 2021, CREFC recognized the need for a robust and unbiased ESG monitoring system that allows our industry partners to track the complex and evolving nature of the U.S. ESG landscape.

CREFC partnered with Oxford Analytica to design a Strategic Issues Monitor (SIM), a benchmark that will allow organizations to identify, assess, and track macro ESG trends with the most impact on the U.S. commercial real estate finance industry and our members over the next three years.

What's next: In June 2023, we presented that baseline report, ESG Trends in the Commercial Real Estate Finance Industry. The report’s goals were to provide an update on new developments and implications for the trends enumerated in the baseline report.

We are pleased to share our first update, ESG Trends in the Commercial Real Estate Finance Industry: Update Report, December 2023, which covers:

• Resiliency and efficiency standards;
• Regulation, policy, and politics;
• Emerging trends including data center resiliency, EV charging, biodiversity, and affordable housing.

Please contact Sairah Burki at sburki@crefc.org with any comments or questions.

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CREFC and Oxford Analytica Publish Update to CRE ESG Trends Report

December 8, 2023

Having launched its Sustainability Initiative in early 2021, CREFC recognized the need for a robust and unbiased ESG monitoring system that allows our industry partners to track the complex and evolving nature of the U.S. ESG landscape.

CREFC partnered with Oxford Analytica to design a Strategic Issues Monitor (SIM), a benchmark that will allow organizations to identify, assess, and track macro ESG trends with the most impact on the U.S. commercial real estate finance industry and our members over the next three years.

In June 2023, we presented that baseline report, ESG Trends in the Commercial Real Estate Finance Industry, with the goal of providing an update on new developments and their implications for the trends enumerated in the baseline report.

We are pleased to share our first update, ESG Trends in the Commercial Real Estate Finance Industry: Update Report, December 2023, which covers:

• Resiliency and efficiency standards;
• Regulation, policy, and politics; and
• Emerging trends including data center resiliency, EV charging, biodiversity, and affordable housing.

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CREFC Welcomes Commercial Real Estate Finance Industry to Annual Miami Conference on January 7-10, 2024

December 6, 2023

Best-selling author Ben Mezrich to serve as keynote speaker for the largest annual industry event that draws thousands of market participants

NEW YORK, December 6, 2023 – The CRE Finance Council (CREFC), the trade association that exclusively represents the $5.9 trillion commercial and multifamily real estate finance industry, will host its annual Miami Conference on January 7-10, 2024. CREFC’s largest event of the year will bring together over 2,200 finance professionals to discuss the latest issues, trends, and challenges that are top of mind for industry participants.

The Miami 2024 conference focuses on the wave of maturing commercial real estate debt, rising insurance costs amid climate change, and the future of office properties. This year’s conference will offer a Servicing Summit, a unique series of panel discussions focused on commercial mortgage servicing, and a roundtable for young professionals. Also, a series of industry Forum meetings will take a deep dive into issues impacting key segments of commercial real estate finance.

New York Times bestselling author, Ben Mezrich, kicks off CREFC Miami’s opening session. Mezrich has authored 25 books, with a combined printing of over 10 million copies. He offers a fascinating, never-before-seen glimpse into one of the wildest stories of the last decade: the GameStop short squeeze.

For information about other notable keynote speakers participating at the Miami conference, click here.

CREFC’s Miami conference, which has drawn thousands of industry leaders for over two decades, offers a series of panels addressing timely topics and issues for CRE finance professionals, including:

• Economic Fortune Telling: Insights on the Future of CRE, Housing, Rates, the U.S. Economy, and Anything Else We Left Out
• Trading Spaces: Converting Office and Other Distressed Assets to Housing
• If You Build It, Will They Come (And Can They Afford It)? Multifamily and the Housing Affordability Puzzle
• Welcome to Miami: Migration South and Other Real Estate Trends Post-COVID
• Risky Business: Rising Real Estate Insurance Costs & Managing Operating Expenses in the Face of Climate Change
• Eye in the Sky: Servicing Perspectives From the Top
• Special Assets – Talking Your Book: The Good, The Bad and The Ugly
•  Is It Something I Said? Managing Securitization Workouts Within the Ecosystem of the Trust

"We are excited to bring together leading commercial real estate finance industry market participants at our annual January Conference in Miami,” said Lisa Pendergast, Executive Director, CREFC. “Our timely and relevant programming and panel discussions are sure to provide attendees with critical insights on challenges and opportunities facing commercial real estate finance in 2024. Panel discussions will examine how commercial property markets will manage the debt maturity wall, escalating insurance costs, and some of the novel strategies involved with repurposing office properties into residential housing.

“Also, just as we did at our Annual June conference, we are pleased to provide a series of specialized panels on various aspects of servicing commercial real estate debt in the current unprecedented environment.”

To learn more about CREFC’s upcoming conferences and events, please visit: https://www.crefc.org/events.

About CREFC

The CRE Finance Council (CREFC) is the trade association for the commercial real estate finance industry with member firms including balance sheet and securitized lenders, loan and bond investors, private equity firms, servicers, and rating agencies, among others. For 30 years CREFC has promoted liquidity, transparency, and efficiency in the commercial real estate finance markets, and acted as a legislative and regulatory advocate for the industry, playing a vital role in setting market standards and best practices, and providing education for market participants.

Media Contact:

Aleksandrs Rozens

Senior Director, Communications

ARozens@crefc.org

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CREFC Welcomes Commercial Real Estate Finance Industry to Annual Miami Conference on January 7-10, 2024

December 6, 2023

Best-selling author Ben Mezrich to serve as keynote speaker for the largest annual industry event that draws thousands of market participants

The CRE Finance Council (CREFC) will host its annual Miami Conference on January 7-10, 2024. CREFC’s largest event of the year will bring together over 2,200 finance professionals to discuss the latest issues, trends, and challenges that are top of mind for industry participants.

The Miami 2024 conference focuses on the wave of maturing commercial real estate debt, rising insurance costs amid climate change, and the future of office properties. This year’s conference will offer a Servicing Summit, a unique series of panel discussions focused on commercial mortgage servicing, and a roundtable for young professionals. Also, a series of industry Forum meetings will take a deep dive into issues impacting key segments of commercial real estate finance.

New York Times bestselling author, Ben Mezrich, kicks off CREFC Miami’s opening session. Mezrich has authored 25 books, with a combined printing of over 10 million copies. He offers a fascinating, never-before-seen glimpse into one of the wildest stories of the last decade: the GameStop short squeeze.

For information about other notable keynote speakers participating at the Miami conference, click here.

CREFC’s Miami conference, which has drawn thousands of industry leaders for over two decades, offers a series of panels addressing timely topics and issues for CRE finance professionals, including:

• Economic Fortune Telling: Insights on the Future of CRE, Housing, Rates, the U.S. Economy, and Anything Else We Left Out
• Trading Spaces: Converting Office and Other Distressed Assets to Housing
• If You Build It, Will They Come (And Can They Afford It)? Multifamily and the Housing Affordability Puzzle
• Welcome to Miami: Migration South and Other Real Estate Trends Post-COVID
• Risky Business: Rising Real Estate Insurance Costs & Managing Operating Expenses in the Face of Climate Change
• Eye in the Sky: Servicing Perspectives From the Top
• Special Assets – Talking Your Book: The Good, The Bad and The Ugly
• Is It Something I Said? Managing Securitization Workouts Within the Ecosystem of the Trust
• The Squeeze on Debt Liquidity: Regulatory Stress on the Financial Sector
•  Challenges and Opportunities amidst Financial Stress

“We are excited to bring together leading commercial real estate finance industry market participants at our annual January Conference in Miami,” said Lisa Pendergast, Executive Director, CREFC. “Our timely and relevant programming and panel discussions are sure to provide attendees with critical insights on challenges and opportunities facing commercial real estate finance in 2024. Panel discussions will examine how commercial property markets will manage the debt maturity wall, escalating insurance costs, and some of the novel strategies involved with repurposing office properties into residential housing.

“Also, just as we did at our Annual June conference, we are pleased to provide a series of specialized panels on various aspects of servicing commercial real estate debt in the current unprecedented environment.”

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Capitol Hill - Political Update

September 25, 2023

What happened this week:

Rep. George Santos (R-NY) was expelled by the House of Representatives in a bipartisan vote. The House voted to expel the indicted New York Republican 311-114, exceeding the two-thirds threshold required for booting a member.

By the numbers: Nearly all Democrats supported the measure, with two voting against it and two voting present, while 104 Republicans backed it. It's the first time the House has expelled a member without a conviction since the Civil War.

• Santos is only the sixth member of the House to be expelled.
• Three of the other members fought for the Confederacy and two others were convicted on federal charges.

Why it matters: The Santos saga on Capitol Hill is over, but his story has just begun. Prosecutors are just getting started on trying him in court with a preliminary trial scheduled for September of next year.

Special Election: An election will be held for someone to fill out the rest of Santos’ term, likely in February 2024.

Back to legislation: Meanwhile, Congress remains busy on a supplemental aid package that could include spending for the border, Ukraine, and Israel. President Biden has requested a $100 billion bill that would include funding for the following for all the above.

• Israel: The debate has moved to “conditional aid” meaning that the United States would require Israel to use the money in very specific ways and may limit how much can be spent on weapons.
• Ukraine: The debate centers around the total sum of money allotted and for how much longer the U.S. will provide aid.
• Republicans demand that any further aid for either country must revolve around southern border security.

The bottom line: The Senate is hoping to vote next week on a bill that would contain funding for all of the above. But with only 10 voting days left in the year for the Senate and eight voting days left in the House, this could get tricky.

Please contact James Montfort (JMontfort@crefc.org) with any questions.

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SEC Finalizes Conflicts-of-Interest in Securitization Rule

December 4, 2023

On November 27, the SEC published its final rule on Conflicts of Interest in Securitization.

• The final rule included changes that addressed some of CREFC’s key concerns.
• Compliance will be required with respect to any ABS the first closing of the sale of which occurs 18 months after publication in the Federal Register.

Why it matters: The rule is intended to prevent securitization market participants from benefiting from ABS that are designed to fail.

CREFC met with the SEC over the course of several months, urging them to adjust the proposed rule to avoid unintended consequences for the CMBS market. Click here for CREFC’s letter to the SEC. CREFC also educated Members of Congress on the issue, highlighting the potential negative impacts to CRE if the changes cause a contraction in CMBS issuance.

Congress took note of the issue. In October, Rep. Wiley Nickel (D-NC) and Rep. Bryan Steil (R-WI) led a bipartisan letter from 25 House members to the SEC that urged caution on the proposed Conflicts of Interest in Securitization rule.

Go deeper: The final rule addressed several of CREFC’s key concerns:

• The definition of “sponsor” (i.e., one of the defined “securitization participants” that is subject to the rule) was narrowed to exclude service providers that perform only actions related to ongoing administration, such as a servicer. However, in the final release language, the SEC noted that the classification of a “special servicer” would be facts- and- circumstances-based.
• The definition of “sponsor” was also narrowed to exclude “long-only investors” exercising contractual rights. Similar facts and circumstances analysis would be needed here if an entity is both a B-piece buyer and special servicer.
• Coverage of securitization participant affiliates was narrowed to affiliates that act in coordination with a securitization participant or have access to certain information about the ABS.

What’s next: CREFC is continuing to review the rule and will update our membership as needed.

Contact Sairah Burki (sburki@crefc.org) and David McCarthy (dmccarthy@crefc.org) with questions on the issue.

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CREFC’s 2023 DC Fly-in

December 4, 2023

On November 29, CREFC members spent the day meeting with lawmakers and their staff on Capitol Hill in Washington, D.C. The series of meetings included market updates and discussion of several key issues.

Why it matters: Direct, in-person engagement with Congress is a key tool to highlight the industry and critical issues it faces, especially during market distress and amid increasing regulation.

What they’re saying: Overall, there is bipartisan concern on regulatory overreach and the impact on CRE and Housing. Beyond the agenda items, discussions spanned CRE loan performance, housing, office conversions, and return to work.

CREFC’s meetings focused on three key policy issues:

• Basel Endgame Capital Requirements: CREFC is concerned increased capital requirements will further hamper credit availability.
• SEC Conflicts of Interest: As the rule was finalized days before, CREFC highlighted key “wins” in the regulation but cautioned that there could still be negative impacts on some participants.
• SEC 15c2-11 and Rule 144A: CREFC thanked lawmakers for their focus on exempting 144A bonds from a backdoor rule change that was set to take effect in 2025.

Over the course of the day, CREFC met with offices including, House Financial Services Chairman Patrick McHenry (R-NC), Majority Whip Tom Emmer (R-MN), Rep. Brad Sherman (D-CA), Rep. Andy Barr (R-KY), Rep. Ann Wagner (R-MO), Rep. Bryan Steil (R-WI), Rep. Brittany Pettersen (D-CO), Rep. Bill Foster (D-IL), Rep. Steven Horsford (D-NV), Rep. Ritchie Torres (D-NY), Rep. Josh Gottheimer (D-NJ), Rep. Dan Meuser (R-PA), Sen. Jack Reed (D-RI), Sen. Chris Coons (D-DE), and Sen. Raphael Warnock (D-GA).

Interested in joining next time? CREFC will be scheduling future fly-ins in 2024.

1. Join a CREFC Forum (click here if you have not yet joined a forum).
2. Contact David McCarthy (dmccarthy@crefc.org) to get more involved on Capitol Hill efforts. 

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CREFC members were welcomed to the U.S. Capitol by House Majority Whip Tom Emmer (R-MN).

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